How does green finance policy affect firms' pro‐environmental mergers and acquisitions?

Abstract The study reveals that the Green Credit Guidelines significantly encourage firms' pro‐environmental mergers and acquisitions (M&As) among polluting industries, as evidenced by difference‐in‐differences estimations with Chinese listed firms (2004–2020). Three primary mechanisms include increased commercial credit financing, improvements within firm agencies, and heightened scrutiny from external analysts. The effect is more prominent in non‐state‐owned firms, firms with a higher number of executives with financial backgrounds, and regions with lower levels of green financial development and environmental regulations. Post‐M&A, acquiring firms demonstrate a marked decrease in environmental governance expenses and carbon emissions, alongside an improvement in overall environmental performance.