Does financial liberalization promote corporate environmental performance? Evidence from foreign banks' entry into China.

While the impact of financial liberalization on local economies and financial sectors has been extensively discussed, limited evidence exists regarding its effects on corporate environmental performance. We investigate the impact of financial liberalization on corporate environmental performance using a unique and comprehensive dataset that includes firm-level pollution emissions. The results indicate that the entry of foreign banks significantly enhances corporate environmental performance, as demonstrated by a reduction in SO₂ emission intensity. These findings are robust and supported by various approaches. Mechanism analysis suggests that the entry of foreign banks can alleviate financing constraints and improve end-of-pipe governance. However, there is no evidence suggesting that enterprises reduce pollution emissions through technological upgrades. Further analysis reveals that private and foreign-owned firms experience more substantial environmental benefits compared to state-owned firms. Government actions significantly influence the emission reduction effects of foreign banks. Strengthening environmental goals by local governments enhances emission reduction effects; while, a weakening of these effects is observed when economic growth goals take precedence. This paper provides empirical evidence and policy insights for the continued expansion of financial liberalization, considering its environmental benefits. [ABSTRACT FROM AUTHOR]