Impact of Environmental Information Disclosure on Corporate Debt Financing in China

Abstract

How to effectively curb corporate environmental pollution remains a challenge for all stakeholders. China is no exception. One way to force companies to reduce the impact of their operations on the environment is to link their loan funding capacity to the quality of environmental information disclosure; a device known as green credit mechanism. This paper empirically tests the correlation between the quality of enterprise environmental information disclosure and their debt financing ability. The sample consists of 351 listed companies in heavy polluting industries on the Shanghai Stock Market. Content analysis was used to quantitatively analyze the environmental information disclosed in these companies’ social responsibility reports (or their environmental reports and sustainable development reports) for the period 2016-2018 and measure the environmental information disclosure level. Short-term loan, long-term, and total loan increments were used as explanatory variables to explore the correlation between the level of environmental information disclosure and debt financing. It was found that the level of environmental information disclosure among the companies sampled varies greatly and that there is a significant positive correlation between the level of environmental information disclosure of the sampled companies and their borrowing capability. Only 143 firms out of the 351 examined produced reports. The paper puts forward some suggestions to improve the level and quality of environmental information disclosure.