Heterogeneous debt financing and environmental research & development: Evidence from China

This study investigates the relationship between heterogeneous debt financing and environmental research and development (R&D) based on debt heterogeneity hypothesis using Chinese listed firms from 2011 to 2019. Results show that firms with higher trade credit are more likely to engage in environmental R&D, while firms with more bank credit unlikely conduct environmental R&D. Bank credit restrains firms' environmental R&D through aggravating its financing constraints, and trade credit stimulates firms' environmental R&D by increasing its excess cash holdings. Considering firms heterogeneity, the negative effect of state-owned firms' bank credit on environmental R&D is more pronounced than that of non-state-owned firms. In contrast, trade credit's positive impact on environmental R&D only exists in state-owned firms. Further researches suggest that the Environment Protection Law promotes firms to engage in environmental R&D, but it only weakens the relationship between bank credit and environmental R&D. The study reveals that heterogeneous debt financing can exert different effects on environmental R&D, which expands theoretical connotation of the debt heterogeneity hypothesis, and enriches the literature on environmental R&D.