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This article studies the impact of stringent environmental regulation on the investment behavior of firms. Using panel data for Chinese listed firms from 2009 to 2018, we take the implementation of the new environmental protection law (NEPL) in 2015 as a quasi-natural experiment and identify its impact on reducing overinvestment of high polluting firms. Further, for the potential mechanism, we find that the reduction in agency costs and the decrease in the financing caused by NEPL can help to alleviate overinvestment problems. Considering the heterogeneity of firms, NEPL has a greater effect on state-owned firms and large-scale firms, which have serious overinvestment problems. Our empirical evidence strongly supports that NEPL can realize a win-win situation for the environment and the economy. [ABSTRACT FROM AUTHOR]

The innovative application of green credit policy as a means of financial regulation in the field of environmental governance is an important attempt to balance the relationship between environmental protection and economic development. It reshapes the credit financing environment of high-pollution enterprises, forces them to transform and upgrade, and arouses their enthusiasm for green development. At the same time, it can profoundly affect their ‘real-to-virtual’ transformation, that is, the financialization of real enterprises. Based on the wide application of the green credit policy and rapid development of the financial market, this paper selected the empirical data of A-share listed companies in China from 2008 to 2019, and used the DID method to test the differences in financialization between high-pollution enterprises and non-high-pollution enterprises before and after the implementation of the Green Credit Guidelines. Benchmark regression showed that, compared with non-high pollution enterprises, green credit policy significantly inhibited the finan‑ cialization of high-pollution enterprises. After a series of robustness tests such as the parallel trend test, the placebo test, and PSM-DID, the results were still valid. The mechanism test showed that, this benefited from the technological innovation promotion and agency cost reduction resulting from the green credit policy. Heterogeneity test further showed that the inhibition effect on the financialization of high-pollution enterprises varied with the nature of the property rights of these enterprises and the intensity of the enforcement of regional environmental laws. Compared with state-owned enterprises and enterprises in areas with weak environmental law enforcement, the inhibition effect on the financialization of enterprises was more obvious in non-state-owned enterprises and areas with strong environmental law enforcement. The result confirms the effectiveness of the application of green credit policy at the micro level, which could help policymakers evaluate the policy effect, formulate and implement the incentive and restraint mechanisms of green credit policy, as well as remind the high-pollution enterprises of the importance of strengthening technological innovation, seeking green transformation, and rationally investing in financial assets. [ABSTRACT FROM AUTHOR]