Government-initiated corporate environmental credit ratings and cross-regional capital flow

Using a difference-in-differences (DID) approach based on the implementation of environmental credit rating policies across Chinese provinces, we investigate the impact of corporate environmental credit ratings on cross-regional capital flows. Our findings indicate that the adoption of environmental credit ratings significantly attracts cross-regional investment. The impact of environmental credit ratings on cross-regional investment is more pronounced in firms with stronger financing constraints and weaker innovation capabilities. Further, we find that the regions with higher firms’ environmental credit ratings on average attract more cross-regional capital flow and this policy increases GDP growth.