Financial mechanism for sustainability: the case of China’s green financial system and corporate green investment

Fahad Khalid*, Chih Yi Su, Kong Weiwei, Cosmina L. Voinea, Mohit Srivastava

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


Purpose: This study empirically evaluates the effect of China’s 2016 Green Financial System (GFS) framework on corporate green development, focusing on the role of green investment in achieving sustainability. Design/methodology/approach: This study uses a quasinatural experiment design to combine difference-in-difference and propensity score matching methods for analysis. It examines 799 polluting and 1,130 nonpolluting firms from 2013 to 2020, enabling a comprehensive assessment of the GFS framework’s influence. Findings: This study affirms a statistically significant positive influence of the GFS framework on escalating green investment levels in polluting firms. Robust sensitivity analyses, encompassing parallel trend assessment, entropy balancing test, and alternative proxies, corroborate these findings. A mediation analysis identifies the implementation of an environmental management system as the potential underlying mechanism. A cross-sectional analysis identifies high financial slack, high profitability, mandatory CSR regulations, and marketization level as the influencing factors. Research limitations/implications: The study’s findings have critical implications for policymakers, regulators, and companies. Demonstrating the effectiveness of the GFS framework in driving green investment underscores the importance of aligning financial systems with sustainability goals. Originality/value: This study contributes novel empirical evidence on the positive effect of China’s GFS framework on corporate green development. The quasinatural experiment design, coupled with comprehensive sensitivity analyses, strengthens the robustness of the findings.

Original languageEnglish
JournalChina Finance Review International
Publication statusE-pub ahead of print - 31 May 2024


  • China
  • GFS
  • Green investment
  • Green policy
  • Heavy polluter


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