Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 7-Day Trial for You or Your Team.

Learn More →

Environmental performance and bank lending: Evidence from unlisted firms

Environmental performance and bank lending: Evidence from unlisted firms Growing public concerns about sustainability and adopting environmentally responsible practices increase risks as well as opportunities for firms and banks. It is unclear whether being environmentally responsible matters for unlisted firms, which are significant contributors to the degradation of the environment but which are not under strict scrutiny like public listed firms. Using a sample of 3915 firms from developing economies, we investigate whether the superior environmental performance of unlisted firms leads them to better loan conditions. After controlling for endogeneity and sample selection bias, we find that firms with better environmental performance received approximately 6.4% higher loans (as a ratio of total sales) and that this effect is more prominent in small and medium firms. This finding supports an information asymmetry view of agency costs. Our results, however, show that environmental performance does not affect loan duration and collateral requirement, indicating no spillover economic effect of corporate environmental performance on loan conditions. This partially supports a new perspective of legitimacy theory in relation to the ‘greenwash strategy’. Overall, our study shows that strategically engaged environmental activities that are integrated with core business objectives represent an important business strategy for firms to enhance credit access. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Business Strategy and the Environment Wiley

Environmental performance and bank lending: Evidence from unlisted firms

Download PDF
21 pages

Loading next page...
 
/lp/wiley/environmental-performance-and-bank-lending-evidence-from-unlisted-S9M8i7yP02

References (84)

Publisher
Wiley
Copyright
© 2021 ERP Environment and John Wiley & Sons Ltd.
ISSN
0964-4733
eISSN
1099-0836
DOI
10.1002/bse.2804
Publisher site
See Article on Publisher Site

Abstract

Growing public concerns about sustainability and adopting environmentally responsible practices increase risks as well as opportunities for firms and banks. It is unclear whether being environmentally responsible matters for unlisted firms, which are significant contributors to the degradation of the environment but which are not under strict scrutiny like public listed firms. Using a sample of 3915 firms from developing economies, we investigate whether the superior environmental performance of unlisted firms leads them to better loan conditions. After controlling for endogeneity and sample selection bias, we find that firms with better environmental performance received approximately 6.4% higher loans (as a ratio of total sales) and that this effect is more prominent in small and medium firms. This finding supports an information asymmetry view of agency costs. Our results, however, show that environmental performance does not affect loan duration and collateral requirement, indicating no spillover economic effect of corporate environmental performance on loan conditions. This partially supports a new perspective of legitimacy theory in relation to the ‘greenwash strategy’. Overall, our study shows that strategically engaged environmental activities that are integrated with core business objectives represent an important business strategy for firms to enhance credit access.

Journal

Business Strategy and the Environment – Wiley

Published: Nov 1, 2021

Keywords: bank lending; collateral; environmental performance; environmental regulations; loan duration; natural environment

There are no references for this article.