Green finance and corporate financing decisions: A perspective of dynamic leverage adjustment

Abstract

This study examines the effect of green finance on the adjustment speed of capital structure. Using a sample of Vietnamese listed firms over a period from 2009 to 2022, we investigate that heavily polluting firms restricted by green credit policy may adjust their capital structure towards the optimal level faster . Additionally, we show that that the positive association between green finance and the adjustment speed of capital structure is more exacerbated for under-leveraged firms rather than over-leveraged firms. These results are in line with the argument that green finance reduce costs of debt and increase external financing. Our results also remain unchanged after several robustness checks such as re-estimation of the target leverage ratio through the Generalized Method of Moments (GMM) approach, and mechanical mean reversion and zero-debt firms.