Managing transition finance and debt financing costs: mechanisms and threshold models
Bing Zhou, Yue SunPurpose
Transition finance fills the coverage limitations of green finance and provides targeted support for the low-carbon transition of high-carbon industries, offering unique governance value. This study uses a sample of Chinese A-share listed manufacturing firms from 2011 to 2023 to examine the impact of transition finance on debt financing costs and its underlying mechanisms.
Design/methodology/approach
Based on China's Green Bond Endorsed Projects Catalogue (2015), we identify 16 manufacturing industries with significant “stock transformation” characteristics and construct industry-level dummy variables to capture the policy guidance effect of transition finance. Empirical tests validate the core hypothesis and elucidate causal pathways through mediation models, heterogeneity analysis and threshold models. These conclusions remain valid after undergoing robustness tests.
Findings
Transition finance can reduce corporate debt financing costs. The effect is realized through three channels: improving the quality of corporate environmental information disclosure, alleviating financing constraints and strengthening access to commercial credit. Additionally, there is a threshold effect based on firm size. Heterogeneity analysis indicates that this effect is more pronounced in firms with high levels of carbon emissions management, technology-intensive industries and low-profitability firms.
Originality/value
From the perspective of “stock transformation,” we clarify the economic logic behind transition finance supporting the low-carbon transition of high-carbon industries and to effectively distinguish it from green finance. Findings reveal the governance effectiveness of transition finance in information management and resource allocation, providing theoretical and empirical evidence for guiding the smooth transition.