The Impact of Green Finance Policy on The Capital Structure of the UK Manufacturing Industry

Abstract

In response to climate change, the UK government released the report ‘Net Zero Emissions and the Future of Green Finance’ in 2019, aiming to guide capital flows to low-carbon sectors and promote green transformation in the manufacturing sector through green finance policies. Taking the panel data of UK manufacturing firms from 2015-2022 as a sample, this paper constructs a quasi-natural experiment based on the 2019 policy, and analyses the causal effect of green finance policy on capital structure using a difference in difference model (DID). The study sets capital goods manufacturing firms as the experimental group (GICS code beginning with 2010) and other product manufacturing firms as the control group, and further examines the heterogeneous effects of financing constraints and firm size. The results show that the policy significantly reduces the financial leverage of capital goods firms, and the effect is more prominent for firms with high financing constraints and smaller size. Based on the results, this paper proposes policy optimisation proposals at the government, financial institution and enterprise levels to help achieve the goal of "net-zero emissions".