The side effects of local government debt: Evidence from urban investment bonds and corporate pollution in China.

Local government debt plays a vital role in achieving financial financialization and regional economic growth. However, the environmental side effects of the debt-financed infrastructure development model have received little attention. Using a large panel data of Chinese enterprises from 2007 to 2016, we explored the relationship between local government debt in terms of urban investment bonds and corporate pollution emission. We observe that the increase in local government debt exaggerates the intensity of COD emission, equal to 26% of the average. This pollution-promoting effect remains after a series of robust checks. In heterogeneous analysis, local government debt is more likely to affect enterprises located in coastal areas, from pollution intensive industry, operating in regions with weak fiscal strength and operating in regions with low governance quality. The mechanistic exploration from government environmental governance and financial constraint reveals that the local government debt increases corporate pollution when the local fiscal finance emphasizes economy over environmental governance, which has been alleviated after the central government advocates the construction of an environmentally friendly and resource-saving society; An increase of corporate pollution is also possible when local government debt increases the financing constraints of enterprises. We also unveil the source of corporate pollution, and find that if enterprises do not actively adopt environmental strategies either in terms of "end-of-pipe" or "source prevention", they choose to emit more to face with the onslaught of local debt. This study uncovers the environmental impacts of government debt, and explores the potential mechanisms, which can help reduce pollution from local government debt and achieve global climate governance.

The effect of the new Environmental Protection Law on corporate financialization in China.

Using data from non-financial listed firms in China from 2008 to 2020, this study investigates the effect of the new Environmental Protection Law on corporate financialization based on the difference-in-differences model. Findings show that the law's implementation significantly increases the financialization behaviors of corporations in polluting industries. This effect remains robust after a series of robustness checks. Heterogeneity analyses suggest that the policy effect of the law is more pronounced for non-state-owned enterprises, enterprises with high fixed assets ratios, and enterprises in regions with excellent market competition. The new Environmental Protection Law also promotes the financialization of enterprises by increasing costs, reducing commercial credit financing capabilities, increasing risks, and hindering innovation. This article provides new evidence for understanding macro-environmental regulation and micro-firm effects.