Bank Deregulation and Corporate Environmental Performance

In this study, we examine the effect of bank deregulation on corporate environmental performance. We use a unique dataset that contains rich information on firms’ toxic emissions and exploit bank branching deregulation in China. We find that compared with firms with lower exposure, firms more exposed to the bank deregulation improve their environmental performance, measured by lower chemical oxygen demand (COD) emission intensity after the bank branching deregulation. We further demonstrate that treated firms’ production efficiency increases and the ratio of tangible assets to total assets decreases, which suggests that upgrading technology and asset mix are the main channels. In order to improve the efficiency of banking system, many developing countries are undergoing or moving toward liberalizing the banking industry, with the focus on firm environmental performance, this paper documents an important but unanticipated consequence resulted from bank deregulation.