The impact of green finance on debt financing costs from the perspective of strategic corporate signaling behavior—Evidence from China

Abstract

Green finance is a crucial driver of economic and societal advances. Using an unbalanced panel dataset of Chinese listed companies from 2011 to 2022, this study explores the complex relationship between green finance and debt financing costs. The results reveal a U-shaped relationship, in which green finance initially leads to an increase in corporate financing costs, followed by a decrease. Green finance has heterogeneous effects on financing costs, such that heavily polluting and neutral firms experience minimal effects; in contrast, the strongest effect is observed in regions with a moderate level of green finance development. The narrowest range of financing cost reduction is found in high-development regions, whereas low-development regions experience a minimal nonlinear effect and the widest range of financing cost reduction. Additionally, green finance influences debt financing costs through corporate signaling strategies related to social and environmental responsibility and environmental information disclosure. The direct and indirect effects of various aspects of green finance on debt financing costs are analyzed, and heterogeneity is explored in two dimensions: the level of pollution and the stage of green finance development. This study contributes to the field of green finance by comprehensively analyzing its effect on debt financing costs, with a focus on strategic corporate signaling behavior.