Investors face reduced incentives to finance technological change that devalues their legacy investments. We formalize this “asset overhang” and apply our framework to the climate-banking nexus. Leveraging (1) firm-level data on green innovation and diffusion and (2) the sets of product and technology market peers, we implement a shift-share design that identifies banks’ credit facilities impacted by green firm activities. We find that green firms imposing an asset overhang across all lenders are 3 to 7 percentage points more likely to report tight credit supply conditions. The presence of legacy-free investors mitigates the asset overhang problem, thereby facilitating technological change.
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