Green credit regulation and market efficiency: A perspective of irrational trading

Green credit regulation may increase the operating uncertainty and worsen the financial reporting quality for pollution intensive firms. Literature mentions that enhanced information asymmetry would trigger more irrational trading and lead to a decrease in the market efficiency, which is worth inves...

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Bibliographic Details
Published in:Economic analysis and policy 2024-06, Vol.82, p.199-219
Main Authors: Gao, Yihong, Gao, Jiayan, Li, Haili
Format: Article
Language:English
Subjects:
Emerging markets
Green credit regulation
Irrational trading
Market efficiency
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Summary:Green credit regulation may increase the operating uncertainty and worsen the financial reporting quality for pollution intensive firms. Literature mentions that enhanced information asymmetry would trigger more irrational trading and lead to a decrease in the market efficiency, which is worth investigating under green credit regulation. Using the data of China's A-share listed firms from 2009 to 2015, we study the relationship between green credit regulation and market efficiency based on a difference-in-differences analysis. It finds that green credit regulation reduces market efficiency of pollution intensive firms. Mechanism tests show that policy effects are more pronounced in firms with higher operating uncertainty, greater information asymmetry and stocks with more irrational traders. This study not only contributes to a deeper understanding of the impact of green credit policies on business and stock markets based on irrational theory, but also provides valuable guidance for green finance and economic development.
ISSN:0313-5926
DOI:10.1016/j.eap.2024.02.037