Time：12:00-13:00, Nov. 17th, 2020 Tuesday

Venue：Tongji Building Block A Room 505

Speaker：Chenyu Shan, Associate Professor, Shanghai University of Finance and Economics

Abstract：

We find that firms release more toxics to the environment when they experience a leverage increase. The causal effect of debt financing on corporate pollution is supported by multiple identification strategies including the interstate branching law changes, the introduction of credit default swaps, and the collapse of Drexel Burnham Lambert. The effect of credit on pollution is more pronounced for firms under greater debt repayment pressure in the short term, and for firms with more stringent debt covenants. The effect is also more pronounced when the lending bank experienced decline in profits or capital. Moreover, the pollution rate over investment is also higher for firms with more debt financing. Overall, our findings suggest that traditional debt usage is associated with a higher pollution level. Firms may sacrifice the environment to generate short-term profits to repay their debt. Environmental friendly financial instruments such as green bonds and green loans are necessary to curb pollution.