Does green finance support to reduce the investment sensitivity of environmental firms?
Abstract
This study aims to examine the financing cash flow sensitivity into the firm investment of Environment Sensitive Firms (ESFs). To improve the robustness of our analysis, we implement cluster regression to analyze the 300- firms listed on Shenzhen Stock Exchange. The findings of this study indicate that high-ESFs have more financing cash flow volatility in firm investment than low-ESFs. The firms can reduce this volatility by integrating green finance with their financing cash flows. Green finance helps to implement sustainable investment practices and reduces investment volatility by providing the solution to societal issues. It also assists to generate stable cash flows, lower investment risk, and a better governance structure.
Keyword : environment sensitive firms, investment sensitivity, green finance, risk absorbing capacity, financial constraints
How to Cite
Habib, A., Khan, M. A., & Oláh, J. (2023). Does green finance support to reduce the investment sensitivity of environmental firms? . Journal of Business Economics and Management, 24(3), 405–421. https://doi.org/10.3846/jbem.2023.18865
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Lee, C.-C., & Wang, C.-W. (2021). Firms’ cash reserve, financial constraint, and geopolitical risk. Pacific-Basin Finance Journal, 65, 101480. https://doi.org/10.1016/j.pacfin.2020.101480
Lemmon, M. L., & Zender, J. F. (2010). Debt capacity and tests of capital structure theories. Journal of Financial and Quantitative Analysis, 45(5), 1161–1187. https://doi.org/10.1017/S0022109010000499
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Moyen, N. (2004). Investment–cash flow sensitivities: Constrained versus unconstrained firms. The Journal of Finance, 59(5), 2061–2092. https://doi.org/10.1111/j.1540-6261.2004.00692.x
Mun, S. G., & Jang, S. S. (2015). Working capital, cash holding, and profitability of restaurant firms. International Journal of Hospitality Management, 48, 1–11. https://doi.org/10.1016/j.ijhm.2015.04.003
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Petersen, M. A. (2008). Estimating standard errors in finance panel data sets: Comparing approaches. The Review of Financial Studies, 22(1), 435–480. https://doi.org/10.1093/rfs/hhn053
Shad, M. K., Lai, F.-W., Fatt, C. L., Klemeš, J. J., & Bokhari, A. (2019). Integrating sustainability reporting into enterprise risk management and its relationship with business performance: A conceptual framework. Journal of Cleaner Production, 208, 415–425. https://doi.org/10.1016/j.jclepro.2018.10.120
Sudha, S. (2015). Risk-return and volatility analysis of sustainability index in India. Environment, Development and Sustainability, 17(6), 1329–1342. https://doi.org/10.1007/s10668-014-9608-8
Tang, D. Y., & Zhang, Y. (2020). Do shareholders benefit from green bonds? Journal of Corporate Finance, 61(2), 101427. https://doi.org/10.1016/j.jcorpfin.2018.12.001
Xu, N., Kasimov, I., & Wang, Y. (2022). Unlocking private investment as a new determinants of green finance for renewable development in China. Renewable Energy, 198(7), 35–49. https://doi.org/10.1016/j.renene.2022.07.037
Xue, B., Mitchell, B., Geng, Y., Ren, W., Müller, K., Ma, Z., Puppim de Oliveira, J. A., Fujita, T., & Tobias, M. (2014). A review on China’s pollutant emissions reduction assessment. Ecological Indicators, 38, 272–278. https://doi.org/10.1016/j.ecolind.2013.11.020
Zhang, Y., Li, S., Luo, T., & Gao, J. (2020). The effect of emission trading policy on carbon emission reduction: evidence from an integrated study of pilot regions in China. Journal of Cleaner Production, 265, 121843. https://doi.org/10.1016/j.jclepro.2020.121843
Zhao, X., Ma, X., Chen, B., Shang, Y., & Song, M. (2022). Challenges toward carbon neutrality in China: Strategies and countermeasures. Resources, Conservation and Recycling, 176, 105959. https://doi.org/10.1016/j.resconrec.2021.105959
Allayannis, G., & Mozumdar, A. (2004). The impact of negative cash flow and influential observations on investment–cash flow sensitivity estimates. Journal of Banking & Finance, 28(5), 901–930. https://doi.org/10.1016/S0378-4266(03)00114-6
Barclay, M. J., & Smith Jr, C. W. (1995). The priority structure of corporate liabilities. The Journal of Finance, 50(3), 899–917. https://doi.org/10.1111/j.1540-6261.1995.tb04041.x
Barnett, M. L. (2007). Stakeholder influence capacity and the variability of financial returns to corporate social responsibility. Academy of Management Review, 32(3), 794–816. https://doi.org/10.5465/amr.2007.25275520
Bassetto, C. F., & Kalatzis, A. E. (2011). Financial distress, financial constraint and investment decision: Evidence from Brazil. Economic Modelling, 28(1–2), 264–271. https://doi.org/10.1016/j.econmod.2010.09.003
Brødsgaard, K. E. (2005). The fifth plenary session: A note on recent policy initiatives and China’s 11th five-year plan. The Copenhagen Journal of Asian Studies, 22, 92–99. https://doi.org/10.22439/cjas.v22i1.522
Brusov, P., Filatova, T., Eskindarov, M., Brusov, P., Orehova, N., & Brusova, A. (2012). Influence of debt financing on the effectiveness of the finite duration investment project. Applied Financial Economics, 22(13), 1043–1052. https://doi.org/10.1080/09603107.2011.637893
Chen, Y., & Zhao, Z. J. (2021). The rise of green bonds for sustainable finance: Global standards and issues with the expanding Chinese market. Current Opinion in Environmental Sustainability, 52, 54–57. https://doi.org/10.1016/j.cosust.2021.06.013
Cho, S. J., Chung, C. Y., & Young, J. (2019). Study on the relationship between CSR and financial performance. Sustainability, 11(2), 343. https://doi.org/10.3390/su11020343
Devika, K., & Shankar, K. M. (2022). Paving the way for a green transition through mitigation of green manufacturing challenges: A systematic literature review. Journal of Cleaner Production, 368, 132578. https://doi.org/10.1016/j.jclepro.2022.132578
Ding, S., Kim, M., & Zhang, X. (2021). New Insight on Investment-Cash Flow Sensitivity. https://EconPapers.repec.org/RePEc:gla:glaewp:2021_16
Ferraz, J. C., & Coutinho, L. (2019). Investment policies, development finance and economic transformation: Lessons from BNDES. Structural Change and Economic Dynamics, 48(2), 86–102. https://doi.org/10.1016/j.strueco.2017.11.008
Galanti, S., Leroy, A., & Vaubourg, A.-G. (2022). Investment and access to external finance in Europe: Does analyst coverage matter? International Review of Financial Analysis, 81(4), 102108. https://doi.org/10.1016/j.irfa.2022.102108
Gartner, W. B., Frid, C. J., & Alexander, J. C. (2012). Financing the emerging firm. Small Business Economics, 39(3), 745–761. https://doi.org/10.1007/s11187-011-9359-y
Gomez-Echeverri, L. (2018). Climate and development: enhancing impact through stronger linkages in the implementation of the Paris Agreement and the Sustainable Development Goals (SDGs). Philosophical Transactions of the Royal Society A: Mathematical, Physical and Engineering Sciences, 376(2119), 20160444. https://doi.org/10.1098/rsta.2016.0444
Guang-Wen, Z., & Siddik, A. B. (2022). Do corporate social responsibility practices and green finance dimensions determine environmental performance? An empirical study on Bangladeshi banking institutions. Frontiers in Environmental Science, 10(4), 858. https://doi.org/10.3389/fenvs.2022.890096
Han, S., Zhang, Z., & Yang, S. (2022). Green finance and corporate green innovation: Based on China’s Green finance reform and innovation pilot policy. Journal of Environmental and Public Health, 2022(4), 12. https://doi.org/10.1155/2022/1833377
Höhne, N., Gidden, M. J., den Elzen, M., Hans, F., Fyson, C., Geiges, A., Jeffery, L., Gonzales, S., Mooldijk, S., Hare, W., & Rogelj, J. (2021). Wave of net zero emission targets opens window to meeting the Paris Agreement. Nature Climate Change, 11(10), 820–822. https://doi.org/10.21203/rs.3.rs-128328/v1
Hovakimian, A., & Hovakimian, G. (2009). Cash flow sensitivity of investment. European Financial Management, 15(1), 47–65. https://doi.org/10.1111/j.1468-036X.2007.00420.x
Lamperti, F., Bosetti, V., Roventini, A., Tavoni, M., & Treibich, T. (2021). Three green financial policies to address climate risks. Journal of Financial Stability, 54(1), 100875. https://doi.org/10.1016/j.jfs.2021.100875
Lee, C.-C., & Wang, C.-W. (2021). Firms’ cash reserve, financial constraint, and geopolitical risk. Pacific-Basin Finance Journal, 65, 101480. https://doi.org/10.1016/j.pacfin.2020.101480
Lemmon, M. L., & Zender, J. F. (2010). Debt capacity and tests of capital structure theories. Journal of Financial and Quantitative Analysis, 45(5), 1161–1187. https://doi.org/10.1017/S0022109010000499
Licastro, A., & Sergi, B. S. (2021). Drivers and barriers to a green economy. A review of selected balkan countries. Cleaner Engineering and Technology, 4(4), 1–24. https://doi.org/10.1016/j.clet.2021.100228
Lin, Y.-E., Li, Y.-W., Cheng, T. Y., & Lam, K. (2021). Corporate social responsibility and investment efficiency: Does business strategy matter? International Review of Financial Analysis, 73, 101585. https://doi.org/10.1016/j.irfa.2020.101585
Mohamed, E. B., Fairchild, R., & Bouri, A. (2014). Investment cash flow sensitivity under managerial optimism: New evidence from NYSE panel data firms. Journal of Economics Finance and Administrative Science, 19(36), 11–18. https://doi.org/10.1016/j.jefas.2014.04.001
Moyen, N. (2004). Investment–cash flow sensitivities: Constrained versus unconstrained firms. The Journal of Finance, 59(5), 2061–2092. https://doi.org/10.1111/j.1540-6261.2004.00692.x
Mun, S. G., & Jang, S. S. (2015). Working capital, cash holding, and profitability of restaurant firms. International Journal of Hospitality Management, 48, 1–11. https://doi.org/10.1016/j.ijhm.2015.04.003
Pang, D., Li, K., Wang, G., & Ajaz, T. (2022). The asymmetric effect of green investment, natural resources, and growth on financial inclusion in China. Resources Policy, 78, 102885. https://doi.org/10.1016/j.resourpol.2022.102885
Petersen, M. A. (2008). Estimating standard errors in finance panel data sets: Comparing approaches. The Review of Financial Studies, 22(1), 435–480. https://doi.org/10.1093/rfs/hhn053
Shad, M. K., Lai, F.-W., Fatt, C. L., Klemeš, J. J., & Bokhari, A. (2019). Integrating sustainability reporting into enterprise risk management and its relationship with business performance: A conceptual framework. Journal of Cleaner Production, 208, 415–425. https://doi.org/10.1016/j.jclepro.2018.10.120
Sudha, S. (2015). Risk-return and volatility analysis of sustainability index in India. Environment, Development and Sustainability, 17(6), 1329–1342. https://doi.org/10.1007/s10668-014-9608-8
Tang, D. Y., & Zhang, Y. (2020). Do shareholders benefit from green bonds? Journal of Corporate Finance, 61(2), 101427. https://doi.org/10.1016/j.jcorpfin.2018.12.001
Xu, N., Kasimov, I., & Wang, Y. (2022). Unlocking private investment as a new determinants of green finance for renewable development in China. Renewable Energy, 198(7), 35–49. https://doi.org/10.1016/j.renene.2022.07.037
Xue, B., Mitchell, B., Geng, Y., Ren, W., Müller, K., Ma, Z., Puppim de Oliveira, J. A., Fujita, T., & Tobias, M. (2014). A review on China’s pollutant emissions reduction assessment. Ecological Indicators, 38, 272–278. https://doi.org/10.1016/j.ecolind.2013.11.020
Zhang, Y., Li, S., Luo, T., & Gao, J. (2020). The effect of emission trading policy on carbon emission reduction: evidence from an integrated study of pilot regions in China. Journal of Cleaner Production, 265, 121843. https://doi.org/10.1016/j.jclepro.2020.121843
Zhao, X., Ma, X., Chen, B., Shang, Y., & Song, M. (2022). Challenges toward carbon neutrality in China: Strategies and countermeasures. Resources, Conservation and Recycling, 176, 105959. https://doi.org/10.1016/j.resconrec.2021.105959