Green finance and debt concentration: Evidence from purchase obligations

This study examines how a firm’s purchase obligations affect the choice between concentrating its financing with fewer types of debt (a concentrated debt structure) and dispersing it across more types of debt (a dispersed debt structure). We find that firms with greater purchase obligations are more likely to concentrate their financing in fewer types of debt. Results from the two-stage IV-alike analysis reveal that ESG scores, which proxy for green finance, can act as channels through which purchase obligations are associated with a concentrated debt structure. Further analysis shows that the positive relationship between purchase obligations and debt concentration is more pronounced for firms with non-investment-grade bonds, greater R&D activity, lower leverage, larger size, and non-crisis periods. Additional evidence from an instrumental variables approach and a propensity score matched sample analysis suggests that our findings are robust to endogeneity. Overall, our findings suggest that green finance amplifies the positive association between firms’ purchase obligations and their reliance on concentrated debt structures.