Greening through finance: Green finance policies and firms' green investment

Green investment plays a crucial role in bolstering pollution control efforts and enhancing environmental quality. As an influential financial instrument, Green Finance has gained significant traction among global policymakers for its ability to motivate businesses to actively participate in sustainable practices. This study seeks to bridge existing research gaps by examining how the implementation of Green Finance Reform and Innovation Pilot Zones (GFRI) influences corporate green investments causally. Utilizing the Difference-in-Differences identification strategy with the establishment of GFRI in 2017, our findings provide strong evidence that GFRI effectively stimulates corporate green investments. The conclusion remains robust through a series of tests. Furthermore, we investigate three potential mechanisms that may elucidate this positive impact: external financing, corporate environmental consciousness, and government attention to the environment. Specifically, GFRI imposes penalties on high-pollution enterprises (HPEs), leading to decreased access to external funding, while rewarding non-high-pollution (NHPEs) enterprises with increased access to external funding. Simultaneously, it fosters corporate awareness of environmental issues and amplifies governmental focus on the environment and the effectiveness of environmental law enforcement. Additionally, our findings suggest that GFRI's influence is more pronounced for HPEs and state-owned enterprises but less significant for companies that have already established environmental management systems. In summary, our research offers novel insights into the impact of green finance on corporate investment.