Environmental credit regulatory policies and bank loans of heavily polluting firms

We use the environmental credit rating policy as a quasi-natural experiment to analyze how these policies affect bank loans to heavily polluting firms in China. Utilizing a panel dataset of A-share listed firms and difference-in-differences models, we find that policies (a) reduce the scale and proportion of long-term loans, (b) increase loan costs and financial distress risks, and (c) enhance social responsibility for heavily polluting firms. State-owned firms face stronger regulation, while those in regions with advanced digital financial markets and lower carbon emissions encounter smaller credit constraints. • We analyzed how China’s environmental credit policy (ECRP) affect bank loans to heavily polluting firms in China. • ECRP reduce the scale and proportion of long-term loans for heavily polluting firms. • ECRP increase loan costs and financial distress risks, and enhance social responsibility for heavily polluting firms. • Firms in regions with advanced digital finance and firms with lower carbon emissions face smaller credit constraints.