The Value of Being Greener: Untangling the Relationship between Environmental Investment and Firms’ Access to Trade Credit

Abstract

This study investigates the relationship between corporate environmental performance, as captured by environmental investment, and firms’ access to trade credit. Using data from Chinese listed firms in heavy pollution industries, we find that corporate environmental performance significantly increases firms’ access to trade credit. The positive effect of environmental investment appears more pronounced for firms with stronger internal incentives to conduct eco-friendly practices, lower external regulatory pressure and located in regions with higher economic growth rates. Two factors – namely, increased information transparency and reduced exposure to environmental risk – are found to be channels through which environmental investment affects trade credit. This paper provides a nuanced understanding of how a supplier as a stakeholder plays a significant role in financing environmental sustainability. The results are robust to alternative proxies, model specifications, sample compositions and endogeneity concerns.