Inhibit or stimulate? Green credit guidelines and corporate financialization.

Although the green credit guidelines (GCGs) can force firms to engage in green transformation, it is still unknown whether the GCGs inhibit or stimulate corporate financialization. This research explores the effects and mechanisms of GCGs on financialization of heavy polluters using difference-in-differences estimators. The results indicate that the GCGs tend to strengthen heavy polluters' motivations for precautionary saving and stimulate them to allocate liquid financial assets, while weakening their motivations for investment substitution and inhibiting their speculative allocation of financial assets. After several robustness tests, these conclusions remain valid. The mechanism tests suggest that the guidelines affect corporate financialization through increased financing constraints and reduced agency costs. Further analysis reveals that both types of financial asset allocation used by heavy polluters increase their levels of total factor productivity and green innovation. Heterogeneity analysis demonstrates that the impact of GCGs is more pronounced in nonstate-owned enterprises and firms which are located in regions with underdeveloped financial development and weak environmental law enforcement. In summary, this research explores the differentiated impacts and economic outcomes of GCGs, which not only provides insights into how financial institutions prevent corporate credit risk and achieve the targeted implementation of GCGs but also has certain reference value for the rationalization of asset allocation and green transformation for heavy polluters. • Precautionary saving and investment substitution are two motives of financialization. • GCGs increase heavy polluters' liquid asset holdings out of precautionary saving. • GCGs decrease heavy polluters' speculative holdings out of investment substitution. • GCGs affect corporate financialization via financing constraints and agency costs. • TFP and green innovation of heavy polluters are further incentivized by GCGs. [ABSTRACT FROM AUTHOR]