The impact of green finance on companies’ overcapacity: Evidence from green financial reform and innovation policy in China

The Green Financial Reform and Innovation (GFRI) policy not only serves as a crucial tool for facilitating a comprehensive transition towards sustainable practices in economic and social development but also has a significant influence on the operational activities of companies. However, there is limited research on whether the GFRI policy can affect companies' overcapacity. To address this gap, we use data from the China Stock Market & Accounting Research Database and the Chinese Research Data Services Platform to evaluate the impact of green finance on companies' overcapacity. The results show that the GFRI policy can effectively alleviate companies' overcapacity. Moreover, the GFRI policy can alleviate companies' overcapacity by strengthening market competition, enhancing financing constraints, and promoting innovation. Further, the GFRI policy exerts a more pronounced effect on alleviating overcapacity in non-labor-intensive companies, companies in heavily polluting industries, and companies in regions with weak environmental supervision. This paper not only supplements the relevant literature on alleviating overcapacity but also provides more theoretical support for promoting a national green financial system in practice.