Can Environmental Disclosure and Green Innovation Alleviate Financing Constraints? Evidence from China

Abstract

This study investigates the impact of environmental disclosure (ED) and green innovation (GI) on financing constraints (FC) among heavily polluting listed companies in China, using a panel dataset of 7,359 firm-year observations from 2012 to 2023. The findings reveal that ED significantly alleviates FC by reducing information asymmetry and enhancing investor confidence. Importantly, GI also acts as a moderator, strengthening the negative relationship between ED and FC. This suggests that GI not only enhances a firm's environmental responsibility but also amplifies the positive effects of ED on financing conditions. The study further examines the heterogeneous impacts on state-owned enterprises (SOEs) and non-SOEs, finding that while both ED and GI have stronger effects on alleviating FC in SOEs due to their access to policy loans and subsidies, non-SOEs benefit more significantly from ED in reducing information asymmetry. The results highlight the importance of balancing green innovation and financing constraints for sustainable development. Policymakers and financial institutions are also encouraged to support green innovation through improved policies and regulatory frameworks. Future research may explore the sector-specific, regional, and firm-size variations in these relationships to provide more targeted recommendations.