Does Green Credit Policy Enhance Firms’ Green Total Factor Productivity? Evidence from China

Green finance is a crucial tool for facilitating environmental governance. This paper uses China’s issuance of the Green Credit Guidelines as a quasi-natural experiment and employs a difference-in-differences strategy to examine the impact of green credit policies on firms’ green total factor productivity (GTFP). The results show that green credit policies significantly enhance firms’ GTFP. Decomposing GTFP reveals that green credit primarily enhances firms’ green productivity via green technological progress rather than green efficiency change. Further analysis suggests that green credit improves GTFP through two main channels: promoting green innovation and reducing agency costs. Heterogeneity tests demonstrate that the positive effects are more pronounced for state-owned enterprises, large-scale firms, and firms in heavily polluting industries. This paper provides micro-level empirical evidence on the productivity effects of green credit and offers insights for policymakers seeking to promote firms’ green transformation through financial instruments.