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<p>Using data on Chinese A-share listed companies from 2004 to 2019, and leveraging China’s Low-Carbon City Pilot Policy (LCCP) as a quasi-natural experiment, we employ a staggered difference-in-differences (DID) method to investigate the effect of low-carbon transition on corporate debt financing (CDF). The results show that the LCCP significantly contributes to an average increase in corporate debt ratios of about 1.1 percentage points, and the finding remains robust across a series of tests, including parallel trend tests, placebo tests, negative weight diagnostics, doubly robust estimation, exclusion of confounding policies, instrumental variable (IV) estimation, counterfactual simulations, and propensity-score-matching DID (PSM-DID). The partial-equilibrium model and mechanism analyses indicate that the positive financing effect arises from higher debt demand and cheaper external financing, mainly through output and substitution effects. Heterogeneity tests reveal stronger effects for private and less-constrained firms, firms in clean industries and non-manufacturing sectors, and firms located in eastern and non-resource-based cities. Moreover, this debt expansion is substantiated by real economic improvements rather than a financial bubble, as it improves debt maturity and capital structure while significantly promoting green innovation, especially breakthrough innovations. Overall, the LCCP plays a similar role as ‘green credit’, and environmental activities appear to be important business strategies for firms to enhance financing access and achieve sustainable growth.</p>

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Low-carbon transition and corporate debt financing -- evidence from the low-Carbon City pilot policy in China

  • 期刊论文

  • 发表日期：

    2026年2月9日

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  • Qingqing Gu,
  • Yang Wang,
  • Jinchao Wang

摘要

Using data on Chinese A-share listed companies from 2004 to 2019, and leveraging China’s Low-Carbon City Pilot Policy (LCCP) as a quasi-natural experiment, we employ a staggered difference-in-differences (DID) method to investigate the effect of low-carbon transition on corporate debt financing (CDF). The results show that the LCCP significantly contributes to an average increase in corporate debt ratios of about 1.1 percentage points, and the finding remains robust across a series of tests, including parallel trend tests, placebo tests, negative weight diagnostics, doubly robust estimation, exclusion of confounding policies, instrumental variable (IV) estimation, counterfactual simulations, and propensity-score-matching DID (PSM-DID). The partial-equilibrium model and mechanism analyses indicate that the positive financing effect arises from higher debt demand and cheaper external financing, mainly through output and substitution effects. Heterogeneity tests reveal stronger effects for private and less-constrained firms, firms in clean industries and non-manufacturing sectors, and firms located in eastern and non-resource-based cities. Moreover, this debt expansion is substantiated by real economic improvements rather than a financial bubble, as it improves debt maturity and capital structure while significantly promoting green innovation, especially breakthrough innovations. Overall, the LCCP plays a similar role as ‘green credit’, and environmental activities appear to be important business strategies for firms to enhance financing access and achieve sustainable growth.