Green Finance and Its Unintended Effects on Corporate Financialization: Evidence from China

This study investigates the unintended consequences of China’s Green Finance Reform and Innovation Pilot Zones (GFRI) on corporate financialization (CF). Leveraging a Difference-in-Differences (DID) approach and panel data of listed firms in China, we find that GFRI significantly increases firms’ financialization levels. The effect is more pronounced among firms located in eastern regions, non-state-owned enterprises, those with lower ESG ratings, and management teams lacking financial expertise. Mechanism analysis suggests that the policy’s impact is driven by short-term speculative behavior, motivated by liquidity considerations and profit-seeking incentives. These findings reveal a potential misalignment between green finance policy goals and corporate responses, highlighting the importance of designing sustainability initiatives that minimize resource misallocation and support real-sector investment.