International Review of Economics and Finance 88 (2023) 1287–1300

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International Review of Economics and Finance

journal homepage: www.elsevier.com/locate/iref

Can green finance improve the financial performance of green

enterprises in China?
Bo Yu a, b, Lu Liu a, *, Hong Chen a
a
Business School, Nanjing University of Information Science and Technology, Nanjing, 210044, China
b
Development Institute of Jiangbei New Area, Nanjing University of Information Science and Technology, Nanjing, 210044, China

A R T I C L E I N F O A B S T R A C T

Keywords: This paper constructs a regional green finance development index to examine the impact of green
Green finance finance on the financial performance of green enterprises in China. We find that green finance can
Green enterprises significantly enhance the financial performance of green enterprises through capital aggregation
Financial performance
and information transmission. In addition, R&D innovation acts as a bridge in the influence of
Technical innovation
green finance. According to heterogeneity analysis, green finance tends to contribute more to
clean energy enterprises and enterprises with less government subsidies. The findings contribute
to the scientific evaluation of green financing strategy and lay the foundation for the decision-
making of promoting the sustainable growth of green industries and enterprises.

1. Introduction

Climate change has become a global problem, and a healthy ecological environment provides external support for long-term
economic and social development. In 2022, China’s carbon emissions totaled 11 billion tons, ranking first in the world. China
vowed at the UN General Assembly in 2020 to peak its carbon footprint by 2030 and achieve carbon neutrality by 2060. So far, more
and more countries and regions worldwide have taken steps to achieve carbon neutrality or emission reduction targets, opening up
prospects for the global economy’s green transformation. The primary source of environmental contamination is industrial devel­
opment. Green enterprises are the driving force behind pollution control and environmental protection, and play a significant role in
the implementation of green development (Yuan et al., 2020). As environmental clean-up requires plenty of financial support, under
the green development strategy, the increasing proportion of green industries will increase the demand for financial services.
Therefore, as a practice of promoting sustainable development (White, 1996), green finance policies have been widely embraced
worldwide to deal with potential ecological threats and promote sustainable economic growth (Akomea-Frimpong et al., 2022).
Green finance originated from the “Human Environment Conference” held by the United Nations in the 1970s. In 1974, the Federal
Republic of Germany created the first policy-based environmental bank named “Ecobank” to offer loans with favorable terms for
environmental projects. In June 2003, the emergence of the Equator Principles (EPs) encouraged the globalization of green finance.
Green finance is also known as sustainable finance or eco-finance. Differing from traditional finance, it focuses on fostering sustainable
growth and funding the green economy (Ouyang et al., 2023). Green finance is the intersection between ecology and economics,
aiming to provide financial support for environmental protection projects (Zhou, Tang, & Zhang, 2020). The emergence of green

* Corresponding author. Business School, Nanjing University of Information Science & Technology, 219 Ning Liu Lu, Nanjing City, Jiangsu
Province, China.
E-mail addresses: yubo@nuist.edu.cn (B. Yu), 20211225006@nuist.edu.cn (L. Liu), 1691748849@qq.com (H. Chen).

https://doi.org/10.1016/j.iref.2023.07.060
Received 6 March 2023; Received in revised form 20 July 2023; Accepted 24 July 2023
Available online 27 July 2023
1059-0560/© 2023 Elsevier Inc. All rights reserved.
B. Yu et al. International Review of Economics and Finance 88 (2023) 1287–1300

finance represents a positive shift in the global ecological transition to sustainability (Hunjra et al., 2023). Green finance refers to
investments in ecologically beneficial enterprises, such as green bonds, green loans, green insurance, green funds, green securities, etc.
Even though China’s green finance started late, it has developed swiftly after a series of practices. By the first quarter of 2023, the
balance of green loans in domestic and foreign currencies in China exceeded 25 trillion yuan, and the balance of green bonds exceeded
1.5 trillion yuan, ranking first in the world.
Researchers have currently achieved significant academic progress in the field of green finance. Green finance is committed to
providing perferential policies such as interest rate changes and credit slants for green businesses and environmental projects. The
existing literature concerned more on how green finance affects macroeconomic growth and micro corporate behaviors, such as
corporate investment, financing, and technological innovation. Firstly, in improving the quality of economic development, Ouyang
et al. (2023) conducted an empirical study using China’s provincial panel data to examine green finance’s impact on improving
economic development quality. They discovered that green finance improved the quality of economic growth, but decreased the
growth rate. According to Wang and Wang (2021), green finance may boost the development of green technology, thus supporting
economic growth. Wang et al. (2019) also found that green finance can optimize industrial structure. Secondly, regarding corporate
financing, green finance boosts capital supply for green operations and imposes more financial limitations on polluting activities. On
the one hand, green finance policy can restrict high-pollution firms’ debt financing volume and raise the cost of debt financing for
enterprises with high pollution and energy consumption (Li et al., 2022; Wang et al., 2020). Liu et al. (2017) found that green credit
significantly inhibited the development of industries with high pollution and high energy consumption. On the other hand, starting
with green enterprises, green finance can provide financing help for the green investment of governments and businesses, provide
necessary funding for green enterprises, and enhance green businesses’ access to financing (Berensmann & Lindenberg, 2016). From
the dual viewpoints of polluting and green enterprises, Xu and Li (2020) researched the implementation impacts of green credit,
finding out its significant role in credit resource allocation. Thirdly, regarding the influence on corporate technological innovation,
Flammer (2021) noted that green bonds can encourage businesses to engage in green innovation activities. He et al. (2019) revealed
that the growth of green finance helps environmental protection businesses become more technologically innovative.
The relationship between green finance and corporate performance has only been discussed in a few pieces of literature. Ding
(2019) found that green credit constraints make heavy polluting enterprises passively reduce capital input and fail to improve total
factor productivity promptly. Wang et al. (2021) investigated the effectiveness of the green finance reform and innovation pilot zone.
They found that the policy significantly reduced the total factor productivity of polluting firms, while it improved that of green firms.
There is a lack of research on the impact of green finance on financial performance from the perspective of green enterprises. Although
the role of green finance in transition economies is unquestionable, the practical effect on sustainable development is still worth
studying. Only when green enterprises make profits and obtain sustainable commercial models can they accomplish the sustainability
of the green industry. Therefore, whether green enterprises can produce good financial performance is the key to testing the imple­
mentation effect of green finance. How does China’s green finance influence the development of enterprises, and does it significantly
improve green enterprises’ performance? This requires rigorous empirical testing.
This paper provides a useful supplement for the relevant literature of finance promoting the development of enterprises. Finance
theoretically supports the development of green industries, provides opportunities for the use of clean and environmentally friendly
technologies, and promotes investment in green enterprises (Tamazian & Rao, 2010). At present, green enterprises generally face the
problem of insufficient investment (He & Liu, 2018). This is because traditional finance focuses on profitability and ignores sustainable
development. Generally speaking, green technologies (such as clean energy production) have high uncertainty in profitability, long
payback period and lack of competitive advantages (Ghisetti et al., 2017). Green finance is an innovation of traditional finance, which
can effectively solve the financing problem of green industry. Its essence is still finance but emphasizes environmental benefits.
Compared with previous research on green finance, this study enriches the research on green finance from three perspectives. First,
we construct a green finance development indicator system by combining the main components of green finance (green credit, green
securities, green insurance, and green investment). Secondly, most existing studies have been conducted on polluting enterprises, and
there is insufficient research on green enterprises. We take green enterprises as research objects according to their business content and
green industry classification, reflecting the research perspective’s innovation. Finally, we investigate the heterogeneity of the impact of
green finance from the aspects of company size, enterprise type, and government subsidy. This paper provides beneficial consider­
ations for promoting the sustainable development of green enterprises and industries.
In this paper, we examine the impact of green finance on green enterprises’ financial performance by using the data of green-listed
companies from 2009 to 2019. To measure the level of green finance, we designed an index system from four aspects of green finance
and computed weight by combining subjective and objective methods. In the benchmark regression, fixed effects are controlled for
regression analysis. Additionally, we further test the relationship between green finance and green enterprise performance through
various robustness testing methods, such as GMM, instrumental variable estimation, difference-in-differences analysis, and substi­
tution of variables. We also use the intermediary effect model to analyze the mechanism of R&D innovation in green finance affecting
the financial performance of green enterprises. We find that green finance can promote green enterprises’ performance. After a series
of robustness tests, the results are still valid. Mechanism analysis shows that green finance development can improve enterprises’
performance by promoting R&D and innovation. In the heterogeneity analysis, green finance is tested to contribute more to the
financial performance of small and medium-sized enterprises, clean energy enterprises, and enterprises with low government
subsidies.
The remainder of the article is organized as follows: Section 2 presents the theoretical analysis and research hypothesis. Section 3
describes the research design, including variable measurement and model construction. Section 4 discusses the empirical results and
analysis, as well as the robustness test. Section 5 develops the heterogeneous impact of green finance. Section 6 presents the discussion,

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conclusions, and research limitations.

2. Theoretical analysis and research hypothesis

2.1. Green finance and corporate financial performance

(1) Capital agglomeration effect. Capital is an essential factor for corporate development and is highly related to enterprises’
production, operation, and expansion. Green finance policies impel financial institutions to establish green environmental
protection concepts and change the financing costs and availability of different types of projects. This can suppress the financial
supply to highly polluting and energy-consuming projects and invest more financial resources into the green industry (Wang
et al., 2021). Green finance instruments can improve the financing efficiency of enterprises and reduce financing costs during
capitalization (Wei & Yang, 2022). Green credit aims to provide loans at preferential interest rates to green enterprises or green
projects through specialized procedures of financial institutions. The issuance of green bonds, green funds, and green stocks can
attract social capital into the green industry, increase the stock price during the issuance period, helping green enterprises
obtain direct financing (Tang & Zhang, 2020). Green insurance enables the endogenous negative externality of environmental
pollution and supports the growth of the green industry through credit enhancement and financing.
(2) Information transfer effect. According to the theory of information transmission, the price signal of the green financial market
can reflect the investment value of various green financial products. Green finance policies convey the concept of a green
economy and green transformation to society, further strengthening the investment-oriented role of green finance (Zhan, 2018).
Green finance will help improve the information disclosure mechanism, encourage green enterprises to apply for green certi­
fication, and reduce the anticipated future risks of green projects. This plays an incentive role in enterprises’ environmental
protection responsibility and green behavior. Moreover, China’s emphasis on green development amplifies the signaling effect
of green finance, which greatly improves investors’ confidence in green industries and projects, and reduces their risk premium
(Zhang, 2023). Ultimately, it will effectively reduce the financing cost of green enterprises and improve the yield rate.

On the one hand, green finance internalizes the negative external costs of environmental pollution, strengthens the financial
constraints on polluting enterprises, and suppresses the development of highly polluting and energy-consuming industries (Wang &
Wang, 2018). Meanwhile, measures like financial subsidies are taken to increase the yield of green enterprises, reduce the positive
external costs incurred by environmental protection, and address market failures caused by environmental problems, thereby pro­
moting green industries. On the other hand, green finance policies convey the concept of green development and consumption to
investors and consumers, enhancing their sense of environmental responsibility and encouraging the market demand side to choose
more green products. Thus, it can stimulate the development of green enterprises. Based on these, we propose hypothesis 1.
Hypothesis 1. Green finance can positively affect the financial performance of green firms.

2.2. Green finance, technological innovation, and corporate performance

Developing green industries is to reduce pollution, improve energy utilization, and maximize economic and social benefits at the
minimum costs. Technological innovation is the key to the development of green industry. Clean technology, energy-saving tech­
nology, and new energy technology belong to both high-tech and green industries. Supporting the development of these industries with
the help of green finance can accelerate the coordinated development of the economy and environment. However, such technological
industries are usually characterized by long investment recovery periods, information asymmetry, and high risk, so they face severer
financial constraints.
Firstly, green finance policies improve the external funding of enterprises through the allocation of financial resources. The
inherent uncertainty associated with green research projects poses challenges in fulfilling the financing requirements of green en­
terprises. Green finance mechanisms, such as green bonds and green insurance, can alleviate financial constraints and cater to the
specific needs of green enterprises (Ning et al., 2022). Secondly, green finance will promote multi-department cooperation between the
financial sector, the environmental protection sector, and other departments, thus improving the ability to identify innovation risks. In
addition, the signal of green development and consumption will also reduce the risk of commercialization of innovation results.
Finally, green finance policies reallocate social resources among different industries. It will produce a competitive incentive effect,
creating the atmosphere to enhance innovation and establish a green development strategy.
Innovations are closely related to corporate intangible assets. According to the resource-based view, it can be transformed into
unique, unrepeatable resources, i.e., the core competitiveness of corporates, which is highly related to their sustainable development.
In this view, investment in intangible assets can indirectly contribute to corporate performance. Chiou et al. (2011) proved green
process innovation reduces production costs and waste emissions while enhancing enterprises’ production efficiency and environ­
mental and financial performance. Zhu et al. (2014) also demonstrated that technological innovation is conducive to the financial
performance of enterprises in both the short and long run. According to the abovementioned analyses, hypothesis 2 is put forward in
this paper.
Hypothesis 2. Green finance enhances the financial performance of green enterprises by promoting technological innovation.

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3. Data and methodology

3.1. Sampling and data sources

This study uses China’s listed companies in the green industry on Shenzhen Stock Exchange and Shanghai Stock Exchange from
2009 to 2019. Referring to the studies of Wang et al. (2019) and Wen et al. (2022), this paper obtains the sample of green enterprises
according to the following criteria. According to the industry classification of the China Securities Regulatory Commission, the listed
companies in the industries of environmental protection, ecological protection and environmental governance, and waste resources
utilization are selected. Subsequently, we use the Hithink Royal Flush to screen enterprises in the green industry, including charging
piles, pumped storage, energy storage, wind power, photovoltaic concept, energy saving, wastewater disposal, environmental pro­
tection, garbage classification, and new energy vehicle. These selected enterprises are then integrated with the enterprises in the Wind
Financial Terminal with the stock labels of energy saving, environmental protection, and new energy. The inappropriate samples in the
enterprises are further excluded and manually screened according to their main business.
Financial data of sample enterprises are from the China Stock Market & Accounting Research Database (CSMAR), while regional
data were from historical statistical yearbooks of different provinces, China Statistical Yearbook of Environment, Yearbook of China’s
Insurance, and China Industry Statistical Yearbook. In addition, the samples are further selected by excluding those in the financial
industry or without crucial financial information, as well as ST, *ST, and insolvent samples. Additionally, each continuous variable is
trimmed by ±1% to mitigate the impact of extreme values. The annual unbalanced panel observations of 336 green-listed companies
and 2241 companies were finally obtained.

3.2. Empirical model design

3.2.1. Explained variables

This study defines corporate financial performance as the explained variable. With reference to the practice of Zhou, CAI, and Liu
(2020), a classic indicator for the evaluation of corporate performance, the return on assets (roa) is used as the proxy variable of
corporate financial performance. The total factor productivity (tfp) of enterprises is used as a substitute variable and calculated in the
section of the robustness test (Guo et al., 2023).

3.2.2. Core explanatory variables

The green finance index (gf) is defined as the core explanatory in this study. Green finance includes green credit, green investment,
green securities, and green insurance. Among them, green credit is the most important part of green finance. However, since green
financial products are diversified, green credit is not the sole indicator to measure green finance. Based on the research of He et al.
(2019) and Song et al. (2021), as well as the 2009–2019 data of 30 provinces and municipalities in China, a three-level indicator system
is established after determining the weights of subjective and objective factors. The details are presented in Table 1.
To avoid any dimensional difference among these indicators, the range method is adopted to make them dimensionless. Herein,
Mtmj is the observed value of indicator j indicator of province m in year t, and min(Mj ) is the minimum of indicator j. Correspondingly,
max(Mj ) is the maximum of indicator j and Ytmj is the standardized value. Each second-level indicator equals the arithmetic mean of the

Table 1
Green finance evaluation indicator.
First-level Second-level Third-level indicator Definition Attribute
indicator indicator

Green finance Green credit Proportion of interest expense of energy-intensive Interest expense of six major energy-intensive –
index (gf) (50%) industries industries/total interest expense of industriesa
Green securities Proportion of market value of environmental Total market value of environmental protection +
(25%) protection enterprises enterprises/total value of A-share market
Proportion of the market value of six major energy- Total market value of six major energy-intensive –
intensive industries industries/total value of A-share market
Green insurance Proportion of agricultural insurance volume Agricultural insurance expenditure/total insurance +
(15%) expenditure
Loss rate of agricultural insurance Agricultural insurance expenditure/Agricultural +
insurance income
Green Proportion of public expenditure on energy Financial expenditure on energy conservation and +
investment conservation and environmental protection environmental protection industry/total financial
(10%) expenditure
Proportion of investment in environmental Investment in pollution control/GDP +
pollution control
Proportion of foreign direct investment (FDI) in FDI of energy conservation and environmental +
energy conservation and environmental protection protection industry/Total FDI
industry
a
The six energy-intensive industries identified by the National Development and Reform Commission are: manufacturing of chemical materials and
products, manufacturing of non-metallic mineral products, ferrous metal smelting and rolling processing, non-ferrous metal smelting and rolling
processing, petroleum processing and nuclear fuel processing, and production and supply of electricity and heat.

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corresponding third-level indicator and each first-level indicator (each green finance index) equals the value of each second-level
indicator multiplied by its corresponding weight.
Each positive indicator is standardized by:
( )
Mtmj − min Mj
Ytmj= ( ) ( )
max Mj − min Mj

Each negative indicator is standardized by:

( )
max Mj − Mtmj
Ytmj = ( ) ( )
max Mj − min Mj

3.2.3. Control variables

It should be pointed out that green finance is not the only factor influencing corporate performance. This paper, therefore, adds
variables such as enterprise size, asset-liability ratio, growth, and cash flow to avoid the possible deviations caused by the absence of
any variable (Zhu et al., 2014). A green finance indicator may contain relevant information on the regional economy and financial
development. Given this, this paper, to further control the interference of other macroeconomic variables, introduces regional financial
development level and economic development level into the model as regional control variables. Time, individual, and industry-fixed
effects are controlled in this paper. The definitions of variables are given in Table 2.

3.2.4. Model building

To investigate green finance’s correlation with corporate financial performance, the following panel model is set:
roai,t = α0 + α1 gfi,t + α2 Controlsi,t + λt + μi + ηi + εi,t (1)

Where roait is the financial performance of enterprise i in year t; gfit is the level of green finance for the province where enterprise i was
registered; Controls is control variable (see Table 2 for specific variables); λt , μi and ηi respectively are year, enterprise, and industry
fixed effect; εit is a random error term. A significant positive α1 indicates that regional green finance can notably enhance the financial
performance of enterprises. In this sense, hypothesis H1 is tenable.

3.3. Summary statistics

Table 2 also lists the summary statistics of major variables. It is illustrated that the mean value of financial performance (roa) is
around 0.05, the maximum value is 0.179, and the minimum value is − 0.198. This indicates that there are large differences in
profitability among different green enterprises. The green finance index (gf) has a mean of 0.536, a maximum of 0.744, and a minimum
of 0.134, with a difference of nearly six times. This shows that the development gap in green finance among regions is quite obvious. As
for control variables, the average company size and asset-liability ratio are 22.675 and 0.476 respectively. Moreover, the mean of
corporate growth is 0.168 and the average cash flow is about 0.045. The characteristics of the remaining variables are shown in
Table 2.

Table 2
Variable definitions.
Variable Symbol Definition Observed Mean Standard Maximum Minimum
value value deviation value value

Return on assets roa Net profit/Total average assets 2241 0.050 0.049 0.179 − 0.198
Green finance index gf Calculated according to the indicator 2241 0.536 0.098 0.744 0.134
system
Enterprise size size Take natural logarithm for total assets 2241 22.675 1.285 26.365 20.080
Asset-liability ratio lev Total liabilities/Total assets 2241 0.476 0.175 0.891 0.093
Growth growth Growth rate of operating income 2241 0.168 2.959 15.793 − 16.756
Cash flow fcf Net cash flow from operating 2241 0.045 0.065 0.227 − 0.158
activities/Total assets
Proportion of tangible ppe Net fixed assets/Total assets 2241 0.930 0.086 1.000 0.547
assets
Corporation age age Take natural logarithm for the 2241 2.806 0.369 3.784 1.099
corporation age
Ownership top1 Proportion of shares held by the first 2241 0.355 0.152 0.721 0.081
concentration majority shareholder
Level of financial findev Balance of deposits and loans of 2241 1.446 0.470 2.585 0.655
development financial institutions/GDP
Level of economic ecodev Take natural logarithm of GDP per 2241 11.082 0.452 12.009 9.463
development capita

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4. Empirical results and explanation

4.1. Basic regression analysis

In order to explore whether green finance positively impacts the financial performance of green enterprises, we use fixed effect
regression to estimate Model (1). Table 3 presents the estimated results of green finance on corporate financial performance. To make
the results more robust, we control the influencing factors at the enterprise and the region in Column (1). As shown in Column (1), the
estimation coefficient of green finance is significantly positive (α1 = 0.0389, P < 0.1). According to the regression outcome, the green
finance policy improves the financial performance of green enterprises by 3.89%, which is also significant in an economic sense. The
results prove the effectiveness of green finance policies, thus supporting the conclusion that green finance improves corporate financial
performance (Wu et al., 2022). Green finance improves the financial performance of enterprises and promotes the growth of green
enterprises through capital aggregation and information transmission. The estimation result proves Hypothesis 1. Among the control
variables, we find that the estimated results of firm size, growth, and cash flow are all significant and positive (p < 0.01), which proves
that the financial performance of green firms is affected by firm size and business capacity.
The financial performance of enterprises may be chronically affected by their previous behaviors. These behaviors are long­
standing, showing a serial correlation. To address this problem, the lagged term (L.roa) of the explained variable is included in the
paper and the GMM (Generalized Method of Moments) regression is adopted to test hypothesis H1. According to the test results, the
value P of AR (2) is 0.65, which is above 0.1, indicating no autocorrelation in the second difference. In the Hansen test, the value P is
0.98, greater than 0.1, making it unable to reject the original hypothesis. This indicates that the instrumental variable is valid. As
shown in Column (2) of Table 3, the estimated coefficient of the first lagged term L.roa is significantly positive. It means that the
current period’s performance is affected by that of the previous one. After considering the feature of serial correlation of financial
performance, the coefficient of green finance is still significantly positive (α1 = 0.0257, p < 0.05). It can be seen that green finance
plays a significant role in promoting the financial performance of green enterprises, and Hypothesis 1 is again verified.

4.2. Instrumental variable method

Although we try to control those variables that affect both green finance and corporate financial performance, it still misses some
unobservable factors. In addition, green finance may be adjusted by the development of green enterprises, and there may be a causal
relation between them. To mitigate the endogeneity resulting from missing variables or reverse causality, the instrumental variable

Table 3
Empirical tests of green finance and corporate performance.
Variable (1) (2)

roa roa

gf 0.038 9* 0.025 7**

(1.77) (2.05)
L.roa 0.599 4***
(29.21)
size 0.010 0*** 0.005 5**
(3.59) (2.05)
lev − 0.087 8*** − 0.100 8***
(-6.62) (-8.89)
growth 0.005 9*** 0.008 5***
(12.25) (42.73)
fcf 0.097 1*** 0.026 0**
(4.83) (2.37)
ppe 0.025 3 − 0.228 8***
(1.04) (-10.03)
age − 0.005 8 0.012 1
(-0.33) (1.16)
top1 0.024 9 0.040 0***
(1.42) (3.73)
findev 0.004 8 0.014 7***
(0.53) (3.66)
ecodev − 0.023 2* 0.013 2*
(-1.66) (1.89)
_cons 0.067 6 − 0.494 1
(0.36) (-1.13)
Fixed effect Yes Yes
Observed value 2241 1818
R2 0.398 6

Note: ***, ** and * indicate significance at 1%, 5%, and 10% levels respectively, with value t in
parentheses. The fixed effect includes individual fixed effect, time fixed effect, and industry
fixed effect. The same applies to all the tables below.

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method is adopted for testing. The average annual energy consumption (unit: million tons of coal equivalent) of a region is selected as
an instrumental variable for regression. The instrumental variable should meet the requirements of correlation and exogeneity. ①
Correlation: Green finance policies are formulated to adjust the industrial structure, address climate change and reduce carbon dioxide
emissions. Larger energy consumption will inevitably result in greater carbon emissions, indicating a lower level of regional green
finance. ② Exogeneity: Regional energy consumption depends on demographic factors, geographical location (i.e., heating in winter),
and proportion of heavy industry. These factors can hardly affect green enterprises’ financial performance directly.
According to the test results, the value P of Kleibergen-Paap rk LM statistics is 0.00, significantly rejecting the original hypothesis of
“instrumental variable under identification”. Such value in Wald F statistics is 15.04, greater than 10, which indicates that there is no
weak instrumental variable. In other words, the instrumental variable adopted herein is valid. Columns (1) and (2) of Table 4 present
the first- and second regression results, respectively. According to the first regression, the coefficient of the instrumental variable (IV) is
significantly negative at the 1% level. It means that greater regional energy consumption corresponds to a lower regional green finance
level. Thus, energy consumption affects green finance negatively, which verifies the correlation hypothesis of the instrumental var­
iable. In addition, the second regression shows that the estimated coefficient is significantly positive at the 5% level. This means that
the positive effect of green finance on corporate financial performance is still significant after the possible endogeneity in the model is
controlled, which indicates the robustness of the benchmark regression results.

4.3. DID method

The Green Credit Guidelines were issued in 2012. Since then, the development path of green finance has become clearer and
diversified products have emerged. Meanwhile, relevant plans and deployments have been further refined and improved (Ding, 2019).
According to data released by the People’s Bank of China, the balance of China’s green loans reached RMB 22.03 trillion by the end of
2022. Green credit plays a primary role in the green finance matrix. Green bonds serve as the second largest carrier of green finance in
China. The total issuance on China’s green bond market was US$ 286.9 billion (nearly RMB 1.9 trillion) by the end of 2022. These data
show that green credit accounts for a considerable proportion of green finance policies. In this study, the release of the Guideline is
regarded as a landmark green finance policy for quasi-natural experiments, and the data of the related listed enterprises from 2009 to
2019 are adopted. Then DID method is applied to study the influence of the Guideline on green enterprises’ financial performance. The
A-share enterprises listed on Shenzhen Stock Exchange and Shanghai Stock Exchange between 2009 and 2019 are selected and then
screened according to certain criteria. The specific DID model is given by:
roait = α0 + α1 treati × timet + α2 Controlsit + λt + μi + ηi + εit (2)

Where, roait is the performance of enterprise i in year t, treati × timet is the interaction term between enterprise group dummy variable
and policy dummy variable with the Guideline issued in 2012, a landmark green finance policy, as the study object. The value of time is
set to 0 before 2012 and to 1 after 2012 to show the status before and after the policy is implemented. Green enterprises are the

Table 4
Regression results of the instrumental variable method.
Variable (1) (2)

gf roa

gf 0.177 6**
(2.39)
IV − 0.000 9***
(-3.88)
size 0.001 9 0.010 1***
(0.60) (3.96)
lev 0.010 1 − 0.088 1***
(0.83) (-8.57)
growth − 0.000 4 0.005 9***
(-1.33) (12.56)
fcf 0.039 5** 0.091 7***
(2.42) (5.46)
ppe 0.000 3 0.025 2
(0.01) (1.33)
age − 0.025 7* − 0.001 8
(-1.92) (-0.15)
top1 − 0.022 1 0.026 5*
(-1.08) (1.88)
findev − 0.084 5*** 0.017 1
(-4.62) (1.58)
ecodev − 0.015 5 − 0.018 5
(-0.38) (-1.45)
Fixed effect Yes Yes
N 2241 2241
R2 0.463 6 0.378 1

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treatment group, and the value of treat is set to 0, which is subject to the same enterprise selection process mentioned above. Moreover,
Controls indicates a control variable with the same specific value as above; λt , μi and ηi respectively are year, enterprise, and industry
fixed effect; εit is a random error term. The DID coefficient α1 reflects the impact of the policy. If α1 is significantly positive, then green
finance policy greatly enhances the financial performance of green enterprises, which is consistent with Hypothesis 1. Table 5 reports
the results of DID regression with regional factors uncontrolled in Column (1) and enterprise and regional control variables added in
Column (2). It can be seen that the estimated coefficient of DID term (treat × time) is significantly positive at the 1% level, indicating
the Guideline significantly improves corporate financial performance. This result agrees with the above conclusion.
The parallel trend assumption is the key assumption of the DID model, which requires the performance of the treatment group and
the control group to maintain the same trend before the event. Concerning the method of Qian et al. (2019), the t-test is conducted on
the financial performance changes three years before the implementation of the Guideline in 2012. As shown in Table 6, before 2012,
the P value is above 0.1, so the original hypothesis cannot be rejected. This indicates that the treatment and control groups show no
significant difference in financial performance before policy implementation. This result is in line with the parallel trend hypothesis.
To better observe the policy impact, the changes in the corporate performance of the treatment and control groups before and after
policy implementation are presented. We introduce the interaction between the year dummy variable and group dummy variable into
the model. Also, the period dummy variable for each study year is constructed to analyze the annual dynamic impact of green credit
policy on green enterprise performance. To avoid the trap of dummy variables, the variable of the year 2009 is excluded. Fig. 1 presents
the analysis results. Before the implementation of the policy, the estimated coefficient is insignificant. It indicates that the difference in
corporate performance is insignificant between the two groups of samples, which agrees with the above hypothesis. By contrast, the
estimated result is significantly positive in 2015 after policy implementation, indicating the contribution of green credit policy to the
promotion of financial performance may be lagged to some extent.

4.4. More robustness test

To test the robustness and further ensure the reliability of the estimation results, we replace the dependent variable with corporate
total factor productivity (TFP). TFP (tfp) is a key indicator of enterprise development, which largely reflects the comprehensive
production efficiency and operating performance of enterprises. Concerning the studies of Lu and Lian (2012), the model (3) is
constructed by the LP method. The TFP of enterprises is calculated as an alternative indicator of the financial performance of en­
terprises. Here in, Y is the gross output of an enterprise, and it is measured by operating income; labor is the labor input, measured by
the number of employees; capital is the capital input, measured by the net value of fixed assets; material is the intermediate input, also
the cash that enterprises pay for commodities and services. The above variables are plus 1 when the natural logarithm is taken. The
residual error obtained through the model is the TFP of the enterprise, and then regression analysis is conducted. Column (1) of Table 7
presents the regression results without regional control variables, while Column (2) shows the results after both enterprise and regional
influencing factors are controlled. With TFP as an explained variable to measure corporate performance, the regression coefficient of
green finance is still significantly positive at the 5% level. This indicates that green finance policy contributes to the TFP of enterprises,

Table 5
DID regression results.
Variable (1) (2)

roa roa

treat × time 0.006 8*** 0.006 8***

(2.65) (2.66)
size 0.017 3*** 0.017 3***
(12.54) (12.52)
lev − 0.169 1*** − 0.169 1***
(-30.70) (-30.70)
growth 0.028 4*** 0.028 4***
(27.21) (27.20)
fcf 0.145 1*** 0.145 2***
(19.24) (19.24)
ppe 0.003 4 0.003 5
(0.40) (0.41)
age − 0.011 5* − 0.011 6*
(-1.90) (-1.91)
top1 0.061 2*** 0.061 2***
(7.13) (7.12)
findev − 0.002 1
(-0.52)
ecodev − 0.004 3
(-0.73)
_cons − 0.274 7*** − 0.222 5***
(-6.39) (-2.83)
Fixed effect Yes Yes
N 25 116 25 116
R2 0.287 9 0.287 9

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Table 6
Parallel trend test.
Changes in corporate performance: Mean, difference and significance

Time Treatment control Control group Difference Value P

One year before policy implementation (2011) 0.055 0.051 0.004 0.332
Two years before policy implementation (2010) 0.060 0.053 0.007 0.131
Three years before policy implementation (2009) 0.043 0.040 0.003 0.592

Fig. 1. Annual dynamic effect test.

Table 7
More robustness test.
Variable (1) (2)

tfp tfp

gf 0.493 0** 0.571 3**

(2.13) (2.43)
size 0.524 7*** 0.532 2***
(14.11) (14.31)
lev 0.533 4*** 0.518 4***
(4.43) (4.33)
growth 0.014 3*** 0.014 2***
(4.78) (4.74)
fcf 0.665 7*** 0.651 6***
(4.65) (4.67)
ppe − 0.082 1 − 0.077 8
(-0.44) (-0.41)
age − 0.103 0 − 0.106 0
(-0.68) (-0.70)
top1 − 0.041 6 − 0.044 6
(-0.24) (-0.27)
findev 0.109 2
(1.33)
ecodev − 0.171 6
(-1.10)
_cons − 3.036 6*** − 1.423 9
(-3.17) (-0.70)
Fixed effect Yes Yes
N 2241 2241
R2 0.719 4 0.721 3

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demonstrating the reliability of results.

lnYit = α0 + α1 lnlaborit + α2 lncapitalit + α3 lnmaterialit + εit (3)

4.5. The mechanism of R&D investment

In the previous theoretical analysis, we expected that the development of green finance would improve the profitability of green
enterprises by promoting their R&D innovation. This mechanism is tested by the method of Wen and Ye (2014) and Lu et al. (2021) and
the following model is constructed:
roait = ∂0 + ∂1 gfit + ∂i Controlsit + λt + μi + ηi + εit (4)

Medit = β0 + β1 gfit + βi Controlsit + λt + μi + ηi + εit (5)

roait = γ 0 + γ1 gfit + γ2 Medit + γ i Controlsit + λt + μi + ηi + εit (6)

Where Med is a mediating variable that refers to the corporate technological innovation and is measured by an enterprise’s expenditure
on R&D (rd). Given that R&D investment cannot fully reflect the level of technological innovation, the technological innovation is
measured by net intangible assets (intang) by referring to the work of Wang and Xu (2015). Both variables are standardized with total
assets. Net intangible assets can better reflect innovation achievements than the number of patents because intangible assets are
obtained based on patent rights and non-patent technologies. The other variables have the same meaning as above.
The steps for the intermediate effect test are as follows: if the coefficient ∂1 is significant, it indicates green finance impacts
corporate performance. If ∂1 is insignificant, the mediating effect test is stopped. Then the impact β1 of green finance is tested. At last,
regression is performed on the core explanatory variable, mediating variable, and explained variable to determine whether the co­
efficient γ 1 of green finance on corporate performance and the coefficient γ 2 of the mediating variable is significant. If either β1 or γ 2 is
insignificant, then the Bootstrap method is adopted to test the significance of the coefficient. If the confidence interval of 95% does not
contain 0, the mediating effect is significant; otherwise, there is no mediating effect. Herein, ∂1 is the total effect, γ1 is the direct effect,
and β1 γ 2 is the indirect effect. If the symbols of γ1 and β1 γ2 are identical, it means the partial mediating effect exists and the mediating
effect should take a proportion of β1 γ 2 / ∂1 . If they are different, the suppression effect exists and the mediating effect should take a
proportion of |β1 γ2 / γ 1 |.
Table 8 reports the intermediate effect of technological innovation. The estimation results with net intangible assets (intang) as the
mediating effect are presented in Columns (1) (2) and (3). The coefficient of green finance (gf) in Column (2) is significantly positive,

Table 8
Intermediate effect of technological innovation.
Variable (1) (2) (3) (4) (5)

roa intang roa rd roa

gf 0.038 9* 0.043 2* 0.044 9** 0.004 9 0.029 5

(1.77) (1.68) (2.13) (0.75) (1.21)
intang − 0.139 7***
(-2.89)
rd 0.501 1***
(3.14)
size 0.010 0*** − 0.011 7*** 0.008 3*** − 0.004 2*** 0.013 5***
(3.59) (-4.24) (2.97) (-4.68) (4.42)
lev − 0.087 8*** 0.017 9 − 0.085 3*** 0.007 4** − 0.075 3***
(-6.62) (1.40) (-6.25) (2.51) (-5.33)
growth 0.005 9*** − 0.000 6*** 0.005 8*** 0.000 1 0.005 9***
(12.25) (-2.61) (12.18) (1.02) (11.09)
fcf 0.097 1*** 0.021 0* 0.100 0*** 0.009 6** 0.108 6***
(4.83) (1.72) (5.00) (2.22) (4.88)
ppe 0.025 3 − 0.403 9*** − 0.031 1 0.003 8 0.020 6
(1.04) (-7.26) (-1.06) (0.99) (0.78)
age − 0.005 8 0.007 8 − 0.004 7 − 0.010 9*** 0.002 9
(-0.33) (0.59) (-0.26) (-2.60) (0.15)
top1 0.024 9 0.032 4* 0.029 5 − 0.000 4 0.024 6
(1.42) (1.67) (1.62) (-0.06) (1.27)
findev 0.004 8 − 0.014 8* 0.002 7 0.005 7** − 0.005 5
(0.53) (-1.95) (0.30) (2.01) (-0.53)
ecodev − 0.023 2* − 0.010 3 − 0.024 7* 0.001 0 − 0.033 7**
(-1.66) (-0.89) (-1.77) (0.20) (-1.98)
_cons 0.067 6 0.755 2*** 0.173 1 0.118 8* 0.095 7
(0.36) (4.88) (0.91) (1.92) (0.42)
Fixed effect Yes Yes Yes Yes Yes
N 2241 2241 2241 1914 1914
R2 0.398 6 0.490 3 0.404 6 0.167 0 0.422 3

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indicating that green finance policy significantly increases the intangible assets of green enterprises. As shown in Column (3), the
coefficients of gf and intang are significant but with different symbols, indicating that intangible assets partly weaken green finance’s
influence on corporate performance. When the variable of intangible assets is controlled, the coefficient of gf rises sharply in com­
parison with the corresponding value in Column (1). In summary, green finance can improve the financial performance of green
enterprises by increasing tangible assets.
The estimations with R&D investment (rd) as the mediating variable are presented in Columns (1)(4)(5). It can be seen that the
impact of green finance on R&D investment is positive but insignificant. Therefore, the indirect effect should be tested through the
Bootstrap method. Specifically, 500 times Bootstrap sampling is performed on the model (5). The confidence interval of 95% based on
the mediating effect test is (0.005 1, 0.017 8), excluding 0. Therefore, green finance has a significant mediating effect on improving
green enterprise performance by promoting technological innovation. These results prove that green finance policy can enhance
corporate financial performance by promoting the innovation of green enterprises, thus verifying Hypothesis 2.

5. Further discuss: heterogeneity analysis

5.1. Based on firm size and age

There are notable differences in firm size, with different levels of profitability for large-sized enterprises and small and medium-
sized enterprises. Therefore, the impact of green finance on corporate financial performance should be further analyzed after
considering firm size. Using the median firm size as the criterion, the sample of firms is divided into small and large firms. Table 9
presents the obtained regression results. Green finance significantly contributes to the performance of small-sized enterprises, while its
impact on large-sized enterprises is not significant. Similarly, the samples are divided into young and mature enterprises according to
the median enterprise age for the test. We find that green finance plays a more significant role in improving the performance of young
enterprises.
This is possibly attributed to the fact that large and mature enterprises are faced with fewer capital constraints and have stronger
profitability, by virtue of their scale advantage and low default risk. The green financial system is the icing on the cake for these
enterprises. Due to the implementation of green finance policies, the CBRC and the Central Bank have put forward requirements for
financial institutions’ release of green finance products. Appropriate incentive and restraint mechanisms have been set up to give more
preferential treatment to green industries. Financial institutions will provide small and medium-sized enterprises and young enter­
prises with more favorable loan policies. It helps to alleviate the “size discrimination” and reduce their financing constraints. As a
result, these enterprises can respond to market demands more flexibly, thereby improving their corporate performance.

Table 9
Heterogeneity test: Size and age.
Variable (1) (2) (3) (4)

roa roa roa roa

Small size Large size Young enterprise Mature enterprise

gf 0.101 4* − 0.008 5 0.082 0* 0.040 0

(1.86) (-0.29) (1.92) (1.60)
size 0.008 0 0.005 9 0.002 8 0.010 6**
(1.36) (1.11) (0.52) (2.44)
lev − 0.050 9*** − 0.148 5*** − 0.032 9* − 0.138 8***
(-2.73) (-5.91) (-1.80) (-6.19)
growth 0.006 6*** 0.004 9*** 0.004 9*** 0.005 8***
(8.01) (8.37) (5.68) (11.79)
fcf 0.053 8** 0.134 1*** 0.098 4*** 0.084 1***
(2.13) (4.69) (2.99) (3.24)
ppe − 0.002 1 − 0.006 1 0.027 9 − 0.053 6
(-0.06) (-0.14) (0.75) (-1.51)
age − 0.032 2 − 0.007 6 0.013 2 0.068 7
(-1.26) (-0.27) (0.44) (0.70)
top1 0.037 8 − 0.000 0 0.020 5 0.025 3
(1.43) (-0.03) (0.77) (0.92)
findev 0.002 4 − 0.017 8 0.002 9 − 0.003 8
(0.11) (-1.59) (0.14) (-0.29)
ecodev − 0.003 3 − 0.052 0** − 0.022 6 − 0.049 4***
(-0.12) (-2.55) (-0.83) (-2.60)
_cons − 0.063 3 0.646 7** 0.058 1 0.235 4
(-0.16) (2.11) (0.15) (0.63)
Fixed effect Yes Yes Yes Yes
N 1120 1121 971 1270
R2 0.393 7 0.453 0 0.367 8 0.440 7

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5.2. Based on enterprise types

We divide the sample enterprises into pollution control and clean energy enterprises according to their business types. Pollution
control is further divided into garbage classification, air pollution control, sewage treatment, and other types while clean energy is into
nuclear power, wind power, photovoltaic power, etc. The purpose is to test whether the impact of green finance on green enterprises
varies greatly with different business types. As shown in Table 10, green finance has a significantly positive impact on clean energy
enterprises. This means that green finance can better enhance the performance of clean energy enterprises than pollution control
enterprises. The likely reason is that China’s energy consumption ranks top worldwide. By 2021, the share of coal and oil consumption
in total energy consumption was 74.5%, whereas that of non-fuel energy consumption is relatively low. This results in an urgent need
to replace fuel energy with clean energy. Therefore, clean energy enterprises are the priority objects of green financial policies and
have advantages in obtaining support from governments and financial institutions.

5.3. Based on government subsidies

The prosperity of green industries is significant to carbon peak and carbon neutrality goals, which cannot be separated from policy
support. As a means of government intervention in the economy, government subsidies often replace the market mechanism with the
government decision. In detail, market competition is gradually dominated by the selection of technologies, processes, and products.
Such subsidy policy can yield returns only after the government has accurately predicted the industrial prospect and market demands.
Excessive intervention in microscopic economic activities will lead to adverse policy consequences and a series of rent-seeking and
capture activities. For this reason, it is necessary to analyze the heterogeneous influence of government subsidies in green finance
promoting green industry.
The sample enterprises are grouped into the low government subsidy group and the high government subsidy group, based on the
median government subsidy of sample enterprises. It can be observed from Table 10 that green finance more significantly contributes
to the corporate performance of enterprises in the low government subsidy group. Moderate government subsidies can promote the
development of enterprises. However, excessive government subsidies may lead to rent-seeking activities, thereby tying up the funds
allocated to production or technological innovation. Finally, it will produce an adverse impact on green corporate performance.

6. Conclusions and policy implications

6.1. Major conclusions

In this study, we explore the impact of green finance on the financial performance of green enterprises and further analyze its
internal influence mechanism and effect heterogeneity. This paper has formulated an evaluation index system of green finance from
four levels to measure the development level of regional green finance and uses the data of green-listed enterprises from 2009 to 2019
to test the promotion effect of green finance on corporate financial performance. It is found that the rising level of green finance
contributes to the improvement of the financial performance of green firms. The empirical outcome shows that when the green finance
index increases by one unit on average, the financial performance of green enterprises will be improved by 3.89%. After conducting a
series of robustness tests, the conclusion still holds. The mechanism analysis shows that green finance improves corporate performance
by stimulating R&D innovation. We also find that there is heterogeneity in the effectiveness of green finance, which has a more
significant effect on the financial performance of small and medium-sized enterprises, clean energy enterprises, and enterprises with
low government subsidies.

6.2. Policy implications

The government should strengthen the incentive for the green industry. The development of the green industry cannot be separated
from the effective support of the financial system. It is suggested that the government should build a multi-level and diversified green
financial market system and formulate green finance policies suitable for the industry. As green finance focuses on Banking and "green
credit", the government should also encourage more green financial product innovation. At the same time, we will strengthen policy
coordination in areas related to green finance and industrial development, fiscal taxation, and government subsidies to ensure
transparency and fairness of government subsidies.
In addition, as the main implementer of green finance, financial institutions should play a leading role. We should innovate loans,
financing products, guarantees, leasing, and other products, and guide more resources to invest in green industries. Financial in­
stitutions need to strengthen support for small and medium-sized youth green enterprises and clean energy and pollution control
industries. It is of great significance to provide special financial products for green industries and projects. The competent financial
department should also fully assume the responsibility of promoting the concept of green finance, and should not only focus on the
credit constraints of high pollution and high energy consumption enterprises.
Green enterprises should also improve the ability of independent innovation. Technological innovation is the key to the transfer of
green industries to high-value-added industries. Green enterprises should strive to achieve sustainability in green product
manufacturing, green technology application, green marketing, and other aspects. The expected benefits can be obtained while
coordinating the relationship between eco-efficiency and economic efficiency. At the same time, green enterprises should actively
cooperate with financial institutions and environmental protection departments to achieve sustainable growth in financial

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Table 10
Heterogeneity tests: Enterprise types and government subsidies.
Variable (1) (2) (3) (4)

roa roa roa roa

Pollution control Clean energy Low government subsidy High government subsidy

gf 0.009 7 0.049 1* 0.055 1* 0.003 9

(0.28) (1.74) (1.69) (0.13)
size 0.011 2*** 0.007 0 0.013 2*** 0.012 2***
(3.05) (1.55) (2.76) (3.10)
lev − 0.084 4*** − 0.081 0*** − 0.100 1*** − 0.094 9***
(-4.33) (-4.43) (-4.25) (-5.57)
growth 0.005 8*** 0.005 9*** 0.005 2*** 0.006 3***
(8.15) (8.85) (9.26) (6.53)
fcf 0.118 9*** 0.066 5** 0.078 9** 0.102 7***
(4.24) (2.28) (2.52) (3.58)
ppe 0.006 6 0.071 0* 0.064 3* 0.010 5
(0.22) (1.69) (1.73) (0.31)
age 0.044 8 − 0.027 4 − 0.010 9 0.004 1
(1.35) (-1.29) (-0.34) (0.15)
top1 0.008 7 0.042 8 0.029 3 0.028 8
(0.42) (1.46) (1.08) (1.29)
findev 0.006 7 0.003 1 0.015 9 0.003 9
(0.48) (0.28) (1.39) (0.26)
ecodev 0.012 8 − 0.051 3*** − 0.043 9** − 0.002 8
(0.62) (-2.62) (-2.04) (-0.14)
_cons − 0.461 4* 0.441 1 0.201 3 − 0.221 3
(-1.68) (1.64) (0.69) (-0.76)
Fixed effect Yes Yes Yes Yes
N 1157 1084 1081 1160
R2 0.427 9 0.414 8 0.411 4 0.429 6

performance.
The results of this study have to be seen in light of some limitations. Firstly, due to the limitation of data acquisition, only Chinese
green-listed companies were used in the research sample. Whether green finance also positively influences small and medium-sized
green enterprises needs to be further verified. Secondly, when discussing the impact of green finance on the development of green
enterprises, this paper selects the sample period from 2009 to 2019 without further considering the impact of COVID-19 on green
finance (Zhang et al., 2023). In future research, the role of green finance for enterprises in different economic policy contexts can be
studied. Although there may be the above limitations, this paper provides support and inspiration for the research on the positive
impact of green finance on the development of green enterprises.

Funding

This work is supported by the Major Project of Philosophy and Social Science Research in Colleges and Universities of Jiangsu
Province of China (Grant No. 2022SJZD008; No. SJZT202314).

Data availability

Data will be made available on request.

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