Cultivating strength inside and out: green credit interest subsidy policies and corporate energy efficiency – new evidence from China

Purpose This study aims to investigate the effect of green credit interest subsidy policies on corporate energy efficiency, examine their potential complementarity with government environmental regulation and explore the internal capability-building channels that may underlie firms’ responses to the coordination of fiscal and financial policies. Design/methodology/approach Using panel data on Chinese A-share listed firms from 2009 to 2022, this study employs a machine learning-enhanced difference-in-differences approach to estimate the effect of exposure to green credit interest subsidy policies on corporate energy efficiency. It further conducts policy-interaction, potential-channel and heterogeneity analyses to examine possible policy complementarities, firms’ internal responses and differences in the estimated policy effect across firms. A series of robustness checks is also performed to assess the sensitivity of the main findings. Findings The findings indicate that exposure to green credit interest subsidy policies is associated with a significant improvement in corporate energy efficiency. The estimated interaction terms provide evidence of potential complementarity between these policies and both government administrative environmental penalties and R&D subsidies. Formal coefficient-difference tests suggest that the estimated complementarity is stronger for administrative environmental penalties than for R&D subsidies. The potential-channel analysis further shows that policy exposure is associated with a lower text-based measure of potential greenwashing risk, greater green technological innovation and higher environmental investment. These findings are consistent with, but do not causally establish, the proposed internal capability-building channels. Formal between-group tests also indicate that the estimated policy effect differs significantly according to regional manufacturing agglomeration, environmental information transparency, corporate cash holdings and firm size. Research limitations/implications This study relies primarily on publicly available data from Chinese A-share listed firms, thereby precluding a full examination of corporate micro-level decision-making processes and policy implementation nuances. Future research could thus integrate survey-based evidence with quantitative approaches to investigate industry-specific policy effects. Furthermore, examining the trade-offs between policy incentives and regulatory enforcement in promoting corporate sustainable transformation represents a promising avenue for subsequent inquiry. Practical implications The findings provide practical guidance for policymakers seeking to improve corporate energy efficiency through coordinated fiscal and financial policies. Strengthening the coordination between green credit interest subsidy policies and environmental regulation can more effectively enhance firms’ internal green capabilities (i.e. the firm-level technical and managerial competencies required for green innovation), thereby stimulating green technological innovation and ultimately accelerating corporate green transformation. Social implications By improving corporate energy efficiency and promoting green transformation, green credit interest subsidy policies contribute to resource conservation, carbon emission reduction and the achievement of sustainable development goals. The findings also provide policy evidence for fostering environmentally responsible corporate behavior and supporting China’s carbon peaking and carbon neutrality objectives. Originality/value This study contributes to the sustainability accounting, green finance and environmental policy literature by providing new firm-level evidence on the relationship between regional green credit interest subsidy policies and corporate energy efficiency. It also provides evidence consistent with several potential internal capability-building channels and highlights the possible complementary role of environmental regulation in strengthening the estimated policy effect.