Does the Clean Air Action Mitigate Upward Pressure on Debt Financing Costs? New Evidence from High-Carbon Firms in China

Against the backdrop of increasingly stringent environmental governance and the growing incorporation of environmental risks into credit pricing, this study uses firm-level data from the China Tax Survey Database for 2009–2016 and employs a multi-period difference-in-differences model to examine the effect of the Clean Air Action (CAA) on debt financing costs (DFC). The results show that the CAA significantly reduces the DFC of high-carbon firms. This finding remains robust to instrumental-variable estimation, sensitivity analysis of omitted-variable bias, CS-DID estimation, and a battery of robustness checks. The effect is concentrated among small and medium-sized enterprises, private firms, and firms in the chemical industry. Reduced dependence on government support serves as a partial channel through which the CAA improves debt financing conditions. However, the policy-induced increase in reliance on short-term financing intensifies refinancing pressure and liquidity risk, partially offsetting these financing benefits. Green innovation capabilities and pre-policy cash-based debt-servicing capacity further strengthen the negative effect of the CAA on DFC. These findings extend the literature on the financial consequences of environmental policy and provide micro-level evidence on how credit allocation can support the green transition of carbon-intensive firms in emerging markets.