Time: 13:00-15:00 (UK Time), Wednesday, 12 October 2022
Presenter: Dr. Tianshu Zhao, University of Birmingham
Chair: Prof. Victor Murinde, SOAS University of London
Abstract
Using a large international sample of syndicated loans during the period between 2001 and 2020, we investigate whether and how banks incorporate the environmental performance of borrowing firms in pricing of syndicated loans. We also ask whether loan syndications with higher proportion of lead banks signing up the membership for environmentally responsible lending would price environmental performance differently. Finally, we examine the change in the pricing on environmental performance of firms with the stringency of the national-wide and international-wide environmental policy initiatives. We find that firms with better environmental performance are charged higher loan rates. The intensification of policy initiatives to incentives the pollutant emission reduction does not seem to lead to the situation where the borrowing firms with lower environmental performance being charged a higher price. That syndications with higher proportion of lead banks with green membership show favour, in the form of cheaper loans, toward the borrowing firms with higher carbon emission becomes more pronounced with the heightened policy initiatives for climate change. We contribute our empirical results to the myopia of banks’ incentive structure and the information opaqueness of their operational environment, which gives rise to the misalignment between the legitimate pursuit of private interests by banks and development objectives of a society and the prevalent use of green membership for maximizing perceptions of legitimacy. We support mandatory disclosure of climate-related information of banks to enable effective monitoring and discipline and advocate greening monetary policies and macroprudential financial regulation to modify the incentives for banks’ environmentally responsible lending.
Keywords: Paris Agreement, Socially Responsible Investment, Governance, Bank Lending, Carbon Emissions
JEL Classification: A13, G21, G12; Q5; Q51, Q58
Co-authors: Yener Altunbas (Bangor University) ; Alper Kara (University of Huddersfield); Atiqur Khan (Bangor University)
Presenter
Dr. Tianshu Zhao is a micro-economist with a particular interest in exploiting the micro-economic foundation of the financial development on economic growth. The overall theoretical framework of Dr. Zhao’s research lies on the intersection among Banking, Finance, and Economics. She draws on the theoretical contributions in industrial economics, organisational economics, and institutional economics to investigate the behaviour of banking firms with respect to the provision of credit and risk-taking. She also considers the strategic behaviour of firms in financing real activities within the parameters of the internal and external operational environment and studies the influence of banks on borrowing firms via corporate governance and control. Dr Zhao’s research outputs to date have been published in top-tier refereed journals – such as the Journal of Banking and Finance, the Review of Economics and Statistics, Economics Geography, Regional Studies, and Journal of Financial Intermediation.