Round 1

Reviewer 1 Report

The paper aims at analyzing the impact of the green credit policy (GCP) implemented in China on the green innovation of Chinese firms. The topic is interesting for academics and policymakers, and the paper is well written and clear. However, for being considered for publication, I would suggest that the authors provide additional context to their analysis and explain the value-added with respect to the existing literature.

First, the authors should explain how their manuscript differs - among others - from Hu et al. 2021, Su et al. 2022, and Yao et al. 2021 (among others), which are unfortunately not mentioned in the literature review. It seems that there are some clear overlaps between the analysis presented in the submitted manuscript and the existing studies.

Second, the literature review could provide a better, broader overview of the literature considering the so-called climate-related financial risks and the adoption of green credit policies and other financial policies at the international level. For example, a recent discussion can be found in D’Orazio 2022, where there are also some interesting references to the Chinese case.

References

D'Orazio, P., 2022. Mapping the emergence and diffusion of climate-related financial policies: Evidence from a cluster analysis on G20 countries. /International Economics/, /169/, pp.135-147.

Hu, G., Wang, X., & Wang, Y. (2021). Can the green credit policy stimulate green innovation in heavily polluting enterprises? Evidence from a quasi-natural experiment in China. /Energy Economics/, /98/, 105134.

Su, C. W., Li, W., Umar, M., & Lobonţ, O. R. (2022). Can green credit reduce the emissions of pollutants?. /Economic Analysis and Policy/.

Yao, S., Pan, Y., Sensoy, A., Uddin, G. S., & Cheng, F. (2021). Green credit policy and firm performance: What we learn from China. /Energy Economics/, /101/, 105415.

Author Response

Thanks for your constructive comments and suggestions on our paper. We have revised our paper according to your comments. Below, the original comments are in black, and our responses are in blue.

Note: In order to conveniently track the revised contents in the manuscript based on your valuable recommendations, we have specifically mentioned the page number and line number against each question/suggestion instead of copying the whole changes here in this file.

 

1.First, the authors should explain how their manuscript differs - among others - from Hu et al. 2021, Su et al. 2022, and Yao et al. 2021 (among others), which are unfortunately not mentioned in the literature review. It seems that there are some clear overlaps between the analysis presented in the submitted manuscript and the existing studies.

Reply:

Many thanks for your valuable suggestions. The literature part has been revised, where we added our critical analysis to find the differences between our essay and those three manuscripts. We also discuss the literature you mentioned in the literature review section as well as other recent relevant studies. (The corresponding revision is on Page 2- 3, Line 55-89.) The following is the specific content that we revised in the article.

 

“The existing literature about the measurement of firms' green innovation has undergone a development process from R&D(Jaffe and Palmer,1997; Hamamoto,2006) to the patent data (Popp,2006; Calel and Dechezleprêtre, 2016; Ley et al.,2016; Cui at al., 2018). As part of the inputs to production activities, R&D can not directly explain innovation outcomes. On the contrary, the patent data can show firms' output results in a more micro and direct way, as for the impact of environmental regulation on firms' green innovation of enterprises. Some scholars argue that environmental regulations increase firms' operating and R&D expenditures, especially in resource-based industries. They think that environmental regulations will fail to motivate firms to invest in green innovation and negatively affect it (Liu et al.,2017; Milami,2017; de Haas and Popov,2019). But at the same time, some scholars suggest that reasonable designs of environmental regulations can inspire firms to increase investment in their technology research and development(Blackman et al.,2018; Qi et al.,2018; Wang et al.,2020; Hu et al.,2020). It’s obvious that improving production efficiency and changing production methods can significantly promote firms' green innovation. By analyzing financial markets in G20 countries, D'Orazio(2022) finds that implementing climate-related financial policies such as green finance can contribute to the sustainability of social development. As the first and most complete policy of green finance, green credit policy has also been widely discussed in its role and impact mechanism.

In terms of relevant research, the existing literature mainly discusses the economic effects of green credit policy from the perspectives of firm investment and financing efficiency, emission reduction efficiency and firm innovation enthusiasm, etc. (Li et al., 2018; Wang et al., 2019; Xu and Li, 2020; Cecere et al., 2020). In addition, based on the perspective of financial constraints, Hu et al.(2021) find that green credit policy can significantly stimulate green innovation in heavy-polluting firms by strong financial constraints, high expected sunk costs and high violation costs. Su et al.(2022) argue that the green credit policy can improve air quality in China by limiting pollutant emissions and increasing heavy-polluting firms' burden. Liu et al.(2019) argue that green credit policy positively impacts environmental pollution by significantly reducing the debt financing capacity of heavy-polluting firms. Yao et al.(2021) argue that green credit policy reduces the performance of heavy-polluting firms by increasing firm financing constraints and reducing the level of investment. These studies mentioned above explore different perspectives on the economic effects of green credit policy and the factors influencing the green technology of enterprises.”

 

 

2.Second, the literature review could provide a better, broader overview of the literature considering the so-called climate-related financial risks and the adoption of green credit policies and other financial policies at the international level. For example, a recent discussion can be found in D’Orazio 2022, where there are also some interesting references to the Chinese case.

Reply：

Thanks for your instructive suggestions. In our literature review, we have added some discussions related to the climate-related part and other financial policies at the international level. (The corresponding revision is on Page 2, Line 67-86). The following is the specific content that we revised in the article.

 

“It’s obvious that improving production efficiency and changing production methods can significantly promote firms' green innovation. By analyzing financial markets in G20 countries, D'Orazio(2022) finds that implementing climate-related financial policies such as green finance can contribute to the sustainability of social development. As the first and most complete policy of green finance, green credit policy has also been widely discussed in its role and impact mechanism. ”

In terms of relevant research, the existing literature mainly discusses the economic effects of green credit policy from the perspectives of firm investment and financing efficiency, emission reduction efficiency and firm innovation enthusiasm, etc. (Li et al., 2018; Wang et al., 2019; Xu and Li, 2020; Cecere et al., 2020). In addition, based on the perspective of financial constraints, Hu et al.(2021) find that green credit policy can significantly stimulate green innovation in heavy-polluting firms by strong financial constraints, high expected sunk costs and high violation costs. Su et al.(2022) argue that the green credit policy can improve air quality in China by limiting pollutant emissions and increasing heavy-polluting firms' burden. Liu et al.(2019) argue that green credit policy positively impacts environmental pollution by significantly reducing the debt financing capacity of heavy-polluting firms. Yao et al.(2021) argue that green credit policy reduces the performance of heavy-polluting firms by increasing firm financing constraints and reducing the level of investment.

 

Author Response File: Author Response.pdf

Reviewer 2 Report

Thank for allowing me to read the manuscript entitled "The bright side of green credit policy: Evidence from the firms' green innovation in China".

The paper is well written and well structured. Please see below my detailed suggestions, to improve the paper,

1. Title Please suggest more suitable title, if possible.
2. Abstract The abstract of the manuscript is defined and precise. It also presents in a technically manner. However, it has room to extend for explaining the core issue and theme of the title and outcomes of the empirical analysis. An abstract is the extract of the paper, so it should discuss the finding of the study in a way that reader generates interest to read the whole paper.
3. Introduction Even though this section is written well but still I would suggest careful consideration about necessary items in the introduction. However, a good intro presentation could be precise. The introduction needs to be more structured. It could be the batter that the introduction follows the theme of motivation, brief story, literature gap, and contribution. So, it is better to cite the sources of these facts and figures. Although the overall language of the manuscript is good and acceptable, few grammatic and typo issues have been observed.
4. Literature Review Better to summarize the literature review in the table with necessary items. Cite current and relevant references from well reputed journals.
5. Methodology Methodology is OK but cite most relevant and current refences.
6. Results and Discussion The result and discussion section have been presented in good structure. The results section should provide the mechanism of presented results. Better to make it logically connected the section.
7. Conclusion and Policy Implication Conclusion and policy implication have been presented in the final section of this manuscript. From my point of view, this section should divide into sub-sections. 1. Conclusion. Here the only extract of the theme must discuss in one or two paragraphs. 2. Policy implications. This sub-section should be based on empirical results. It could be one paragraph or in the form of bullets.
8. Overall Expression of the Report This manuscript is a good piece of information. However, the suggestion mentioned above will help a lot to improve the overall presentation of this manuscript and enhance its visibility.

Author Response

Revision list according to the comments from Reviewer 2

The authors really appreciate your sincere guidance and helpful comments. We have conducted a careful revision according to your constructive comments and suggestions. This version of the manuscript greatly benefited from the insightful comments of yours. If anything more is necessary, we will be pleased to revise it again. Thank you very much!. Below, the original comments are in black, and our responses are in blue.

Note: In order to conveniently track the revised contents in the manuscript based on your valuable recommendations, we have specifically mentioned the page number and line number against each question/suggestion instead of copying the whole changes here in this file.

 

1. Title Please suggest more suitable title, if possible.

Reply：

Thanks for your instructive suggestions. We have changed the article title to a more suitable one “Can green credit policy promote firms’ green innovation? Evidence from China”

 

2. Abstract The abstract of the manuscript is defined and precise. It also presents in a technically manner. However, it has room to extend for explaining the core issue and theme of the title and outcomes of the empirical analysis. An abstract is the extract of the paper, so it should discuss the finding of the study in a way that reader generates interest to read the whole paper.

Reply：

Many thanks for your valuable suggestions. We have revised our abstract and extended more details to describe the core issue and theme of the title and the outcomes of the empirical analysis. (The corresponding revision is on Page 1, Line 6-22) . The following is the specific content that we revised in the article.

 

“To achieve the twin goals of "stable growth" and "environmental protection," it is necessary to promote green innovation in firms and green transformation of the economy. This paper regards China’s Green Credit Guidelines policy in 2012 as a quasi-natural experiment to explore the impact of the policy on the green innovation of heavy-polluting firms. This analysis uses Chinese A-share listed industrial enterprises from 2008-2019 as the research sample and difference-in-difference(DID) as the empirical method. The results show that implementing the green credit policy has significantly contributed to firms' green technology innovation enhancement. Moreover, the mechanism suggests that the green credit policy can promote firms' green innovation through channels such as inhibiting the compression of heavy-polluting firms' financing space, increasing their debt financing costs, and promoting firm transformation and upgrading. Further study finds that the green credit policy promotes green innovation significantly for state-owned and large firms but not for non-state-owned and small-scale firms. Based on our empirical results, we can conclude that green credit policy is an efficient way to realize the goal of “environmental excellence” and guide firms to effectively carry out green innovation.”

 

 

3. Introduction Even though this section is written well but still I would suggest careful consideration about necessary items in the introduction. However, a good intro presentation could be precise. The introduction needs to be more structured. It could be the batter that the introduction follows the theme of motivation, brief story, literature gap, and contribution. So, it is better to cite the sources of these facts and figures. Although the overall language of the manuscript is good and acceptable, few grammatic and typo issues have been observed.

Reply：

Thanks for your instructive suggestions. We have revised our introduction. In the revision, we concise our language, restructured our literature review, and modified our contributions. Also, we use Grammarly to check out our grammatical and typo issues. (The corresponding revision is on Page 1-3, Line 23-126.) The following is the specific content that we revised in the article.

 

“China has implemented a series of policies to alleviate the problems of resource depletion and environmental pollution (Zhang and Wen, 2008; Gao et al., 2021a). However, the relevant administrative, tax, and technical tools have not been so effective in achieving the goal of "environmental excellence", and t." There is still a large gap between the reality and the goal of environmental governance.  Therefore, environmental pollution must be eliminated at the source to substantially improve the ecological environment, rather than just depending on the treatment of the "intensity re-duction" of the endpoint. Therefore, to substantially improve the ecological environment, environmental pollution must be eliminated at the source and not just rely on the "intensity reduction" of treatment as the endpoint. According to the concept of green technology proposed by Braun and Wield in 1994, green technology is to follows eco-economic laws and emphasizes a preventive approach, making it more likely to address the root causes of ecological issues (Sukoharsono, 2007; Fraj et al., 2011). As the main body of emissions and the focus of policy implementation, firms should take the corresponding environmental responsibility, green innovation, and promote the green transformation of the economy. However, for some resource-intensive firms, green innovation means a complete production transformation and technological innovation green innovation means a complete production transformation and technological innovation for some resource-intensive firms. This not only exposes firms to capital shortages and investment risks, but the long return cycle of the project is also contrary to their profit-maximizing business goals, resulting in low motivation to undertake green-friendly changes (Cecere et al., 2020). Therefore, it is essential to implement financial incentives to proactively improve firms’ environmental performance (Wen et al., 2021).

…………

The rest of the paper is structured as follows. Section 2 provides background and research hypothesis. Section 3 is methodology and data, and Section 4 presents the empirical results. Then, Section 5 is a robustness test based on the results, and Section 6 is the heterogeneity analysis. Finally, Section 7 concludes with a discussion on policy implications.”

 

4. Literature Review Better to summarize the literature review in the table with necessary items. Cite current and relevant references from well reputed journals.

Reply:

Many thanks for your valuable advice. Due to space limitations, we didn't tabulate the literature, but we have rewritten our literature review using more current and relevant references from more reputed journals. (The corresponding revision is on Page 2-3, Line 55-89) .We hope the experts will understand. The following is the specific content that we revised in the article.

“The existing literature about the measurement of firms' green innovation has undergone a development process from R&D(Jaffe and Palmer,1997; Hamamoto,2006) to the patent data (Popp,2006; Calel and Dechezleprêtre, 2016; Ley et al.,2016; Cui at al., 2018). As part of the inputs to production activities, R&D can not directly explain innovation outcomes. On the contrary, the patent data can show firms' output results in a more micro and direct way. As for the impact of environmental regulation on firms' green innovation of enterprises. Some scholars argue that environmental regulations increase firms' operating and R&D expenditures, especially in some resource-based industries. They think that environmental regulations will fail to motivate firms to invest in green innovation and have a negative affect on it (Liu et al.,2017; Milami,2017; de Haas and Popov,2019).  But at the same time, some scholars suggest that reasonable designs of environmental regulations can inspire firms to increase investment in their technology research and development(Blackman et al.,2018; Qi et al.,2018; Wang et al.,2020; Hu et al.,2020). It’s obvious that improving production efficiency and changing production methods can significantly promote firms' green innovation. By analyzing financial markets in G20 countries, D'Ora-zio(2022) finds that implementing climate-related financial policies such as green finance can contribute to the sustainability of social development. As the first and most complete policy of green finance, green credit policy has also been widely discussed in its role and impact mechanism.

In terms of relevant research, the existing literature mainly discusses the economic effects of green credit policy from the perspectives of firm investment and financing efficiency, emission reduction efficiency and firm innovation enthusiasm, etc. (Li et al., 2018; Wang et al., 2019; Xu and Li, 2020; Cecere et al., 2020). In addition, based on the perspective of financial constraints, Hu et al.(2021) find that green credit policy can significantly stimulate green innovation in heavy-polluting firms by strong financial constraints, high expected sunk costs, and high violation costs. Su et al.(2022) argue that the green credit policy can improve air quality in China by limiting pollutant emissions by increasing the burden on heavy-polluting firms and increasing heavy-polluting firms' burden. Liu et al.(2019) argue that green credit policy has a positive impact on environmental pollution by significantly reducing the debt financing capacity of heavy-polluting firms. Yao et al.(2021) argue that green credit policy reduces the performance of heavy-polluting firms by increasing firm financing constraints and reducing the level of investment. These studies mentioned above analyze and explore different perspectives on the economic effects of green credit policy and the factors influencing the green technology of enterprises. Although a series of policy documents on green credit and green innovation has been recently issued in China, how to effectively combine them is still not clear. Also, theoretical research in this area is relatively scant with only a little on the relationship between green finance and firm green innovation. De Haas and Popov (2019) argue that green bond issuance can promote firm green innovation, Li et al. (2018) verify that green finance can promote cleaner production, and Flammer (2021) confirms that firms' green innovation is related to the degree of stock market development. However, green credit, as an important component in the field of green finance, has unique policy characteristics and necessitates a specific research focus.”

 

5. Methodology Methodology is OK but cite most relevant and current refences.

Reply:

Thanks for your instructive suggestions. We have updated our methodology cite using more relevant and current references. (The corresponding revision is on Page 5-6, Lines 242-263) .The following is the specific content that we revised in the article.

 

“In this paper, the implementation of the green credit policy is treated as a quasi-natural experiment. Following Yang et al.(2020) and Yao et al.(2021), whose analyses are similar to our research, we also use a DID model to address our empirical issue. The difference-in-difference model (DID) is widely used to evaluate policy effects for its effectiveness of causal identification. The empirical results may be biased due to the heterogeneity of business performance and industrial scale of different firms, thus failing to reflect the real policy effect. To address this issue, we employ the propensity score matching method (PSM) developed from Heckman (1976), Rosenbaum and Rubin (1983) to remove sample selection bias. PSM can solve sample selection bias, but it cannot avoid the endogeneity problem due to the omission of variables. Meanwhile, the DID can solve the endogeneity problem well and derive policy treatment effects but without the function of solving sample bias well. Therefore, the PSM-DID method, which combines propensity score matching and difference-in-difference (DID), is used in this paper to conduct the study. First, we use PSM to find the control group closest to the experimental group in terms of control variables such as firm financial data and then perform DID regression using the matched experimental groups and control groups. The basic regression model is constructed as follows”

 

References:

Yang, J., Ying, L., & Gao, M. (2020). The influence of intelligent manufacturing on financial performance and innovation performance: the case of China. Enterprise Information Systems, 14(6), 812-832.

Yao, S., Pan, Y., Sensoy, A., Uddin, G. S., & Cheng, F. (2021). Green credit policy and firm performance: What we learn from China. Energy Economics, 101, 105415.

 

 

6. Results and Discussion The result and discussion section have been presented in good structure. The results section should provide the mechanism of presented results. Better to make it logically connected the section.

Reply:

Thanks for your instructive suggestions. We have revised our results description and made this part more logically connected to the section. (The corresponding revision is on Page 8, Line 354-358； Page 9, Line 383-391; Pages 10. Lines 404-409 and Page 12, Line 491-501)

 

 

7. Conclusion and Policy Implication Conclusion and policy implication have been presented in the final section of this manuscript. From my point of view, this section should divide into sub-sections. 1. Conclusion. Here the only extract of the theme must discuss in one or two paragraphs. 2. Policy implications. This sub-section should be based on empirical results. It could be one paragraph or in the form of bullets.

Reply:

Thanks for your instructive suggestions. We will describe our revisions one by one.

543. Conclusion. We revised our conclusion more straightforwardly. (The corresponding revision is on Page 13, Line 525-543.)

 “To better realize the goal of “environmental excellence” and guide firms to effectively carry out green innovation, this paper focuses on green credit policy proposed in 2012 to discuss the contribution of this policy. Further, we want to find out whether and how the green credit policy promotes firms’ green innovation. Finally, based on our empirical results, we can have some revelations and policy suggestions on how to implement green credit policy better.

Using a dataset covering Chinese A-share listed industrial firms from 2008 to 2019, we study the effect of the green credit policy on firms' green innovation with a DID model. The results show that (1) The implementation of the green credit policy promotes green innovation in heavy-polluting firms; (2) The green credit policy can provide an impetus for firm innovation and transformation, and promote firm green innovation by reducing the financing space of heavy-polluting firms; (3) The implementation of the green credit policy pushes heavy-polluting firms to transform and upgrade the green innovation capability; (4) The heterogeneity analysis shows that the promotion effect of the green credit policy on firms' green innovation is more significant for state-owned firms and large-scale firms, but not for non-state-owned firms and small-scale firms. According to the results concluded above, we can say that green credit policy plays a positive role in promoting firms’ green innovation and help with environmental improvement. The analysis of it means a lot, but it still has something that needs to be improved by the government.”

 

576. Policy implications. We think carefully and add the policy implications in the last section(The corresponding revision is on Page 14, Line 544-576.)

“Our results can be of important implications by summarizing the following policy suggestions. First, the government should continue to enforce green credit policy as environmental regulation. According to our empirical results, green credit policy has a positive contribution to firms' green transformation development.

…….

Meanwhile,the limitation of this paper is that the variables may have trend differences that make interfere in the identification of the disposition effect. Therefore, we can use the Difference-in-Difference-in-Difference ( DDD ) model to control the interference of trend differences on the identification of the disposition effect by introducing a new control group to further explore the net effect of green credit policy on firms' green technology in-novation..”

 

8. Overall Expression of the Report This manuscript is a good piece of information. However, the suggestion mentioned above will help a lot to improve the overall presentation of this manuscript and enhance its visibility.

Reply:

Thank you for your approval of this article. We have revised our manuscript with your advice carefully.

 

Author Response File: Author Response.pdf

Reviewer 3 Report

The present paper "The bright side of green credit policy: evidence from the firms' green innovation in China" is an academic study in the field of green economics. The idea of the paper is excellent; I must appreciate the efforts of the author. By reading the glance of the paper, the paper needs major improvement before it gets published.

1-The abstract: the author should rewrite the sequence as objectives, data, methodology, findings, and policy implications. Delete the irrelevant information on the abstract.

2- Introductory section: Please add references to the second and third paragraphs. There are missing points. Specifically, the section failed to explain prior research contribution, limitation and the novelty of this study to literature and practice.

3- Background section: This section has not been given attention from the author; specifically, the section lacks connectivity with the theme of the study. The author mentioned that they are filling the literature gap; which gap?

4-  Methodology and empirical results. The novelty and contribution adopted model should be highlighted. If possible, the author could add the conceptual framework to show the methodological procedure at a glance. The discussion could be enhanced with additional outcomes of /comparisons with other studies (more recent studies within 2019, 2020 or 2021). Are your results aligned with those of other studies in the field? Yes, no, why, Please discuss and explain with more recent papers.

5-The policy implication and conclusion section: The authors are recommended to provide practical policy to help the esteemed reader. This Section should be expanded with research limitations and recommendations to future research.

6-The authors require to follow the consistent referencing method throughout the paper.

7- All equations need an appropriate reference.

8-The authors need to suggest future recommendation that is practically applicable and helpful for countries understudies, instead of proposing the general recommendation.

9-The paper must clearly express its case, measured against the technical language of the field and the expected knowledge of the journal's readership. Therefore, attention must be paid to the clarity of expression and readability, such as sentence structure, jargon use, acronyms.

 

Author Response

 

Revision list according to the comments from Reviewer 3

The authors really appreciate your sincere guidance and helpful comments. We have conducted a careful revision according to your constructive comments and suggestions. This version of the manuscript greatly benefited from the insightful comments of yours. If anything more is necessary, we will be pleased to revise it again. Thank you very much!. Below, the original comments are in black, and our responses are in blue.

Note: In order to conveniently track the revised contents in the manuscript based on your valuable recommendations, we have specifically mentioned the page number and line number against each question/suggestion instead of copying the whole changes here in this file.

1-The abstract: the author should rewrite the sequence as objectives, data, methodology, findings, and policy implications. Delete the irrelevant information on the abstract.

Reply:

Thanks for your instructive suggestions. We have revised our abstract to be as objectives, data, methodology, findings, and policy implications. (The corresponding revision is on Page 1, Line 6-22.) . The following is the specific content that we revised in the article.

 

“To achieve the twin goals of "stable growth" and "environmental protection," it is necessary to promote green innovation in firms and green transformation of the economy. This paper regards China’s Green Credit Guidelines policy in 2012 as a quasi-natural experiment to explore the impact of the policy on the green innovation of heavy-polluting firms. This analysis uses Chinese A-share listed industrial enterprises from 2008-2019 as the research sample and difference-in-difference(DID) as the empirical method. The results show that implementing the green credit policy has significantly contributed to firms' green technology innovation enhancement. Moreover, the mechanism suggests that the green credit policy can promote firms' green innovation through channels such as inhibiting the compression of heavy-polluting firms' financing space, increasing their debt financing costs, and promoting firm transformation and upgrading. Further study finds that the green credit policy promotes green innovation significantly for state-owned and large firms but not for non-state-owned and small-scale firms. Based on our empirical results, we can conclude that green credit policy is an efficient way to realize the goal of “environmental excellence” and guide firms to effectively carry out green innovation.”

 

2- Introductory section: Please add references to the second and third paragraphs. There are missing points. Specifically, the section failed to explain prior research contribution, limitation, and the novelty of this study to literature and practice.

Reply:

Thanks for your instructive suggestions. We have added references and revised our literature review. We refer to experts' opinions to summarize the contributions and limitations of previous literature and put forward the innovation points of this paper. (The corresponding revision is on Page 2-3, Line 55-126) The following is the specific content that we revised in the article.

 

“The existing literature about the measurement of firms' green innovation has undergone a development process from R&D(Jaffe and Palmer,1997; Hamamoto,2006) to the patent data (Popp,2006; Calel and Dechezleprêtre, 2016; Ley et al.,2016; Cui at al., 2018). As part of the inputs to production activities, R&D can not directly explain innovation outcomes. On the contrary, the patent data can show firms' output results in a more micro and direct way. As for the impact of environmental regulation on firms' green innovation of enterprises. Some scholars argue that environmental regulations increase firms' operating and R&D expenditures, especially in some resource-based industries. They think that environmental regulations will fail to motivate firms to invest in green innovation and have a negative affect on it (Liu et al.,2017; Milami,2017; de Haas and Popov,2019). 

…….

The possible contributions of this paper are summarized as follows. First,……

…….

Third, from the perspective of firm heterogeneity, this paper reveals the difficulties that non-state-owned firms and small-scale firms may encounter in the process of the green credit policy implementation and provides theoretical guidance to enhance the ef-fectiveness of the policy implication..”

 

 

3- Background section: This section has not been given attention from the author; specifically, the section lacks connectivity with the theme of the study. The author mentioned that they are filling the literature gap; which gap?

Reply:

Thanks for your instructive suggestions. We are sorry for not making it clear. In this part, we want to introduce the policy background, and we revised the background section to be more connected with the theme of the study. Moreover, our research enriches the impact of the green credit policy on firm development. (The corresponding revision is on Page 3-4, Line 129-171.)

 

“To guide enterprises to carry out environmental improvement and resource-saving economic activities, it is necessary to implement policies supporting green finance. Green finance promotes green economic transformation by providing financial support to green firms(Zhang and Wang, 2021). As an important part of green finance, the green credit policy has two core elements. First, it can support industries and projects such as energy conservation and environmental protection, cleaner production, ecological environment, and green infrastructure upgrades. Second, to strictly prohibit lending to heavy-polluting firms, and even strictly control and withdraw loans for environmental violations and projects that do not meet the goals of green development(Wang et al., 2019). Therefore, the green credit policy has the capital regulation function of ordinary credit, making the surplus side of capital match with the demand side of the capital. On the other hand, it can also serve as a tool of national macro-control, becoming a means for the state to guide the transformation and upgrading of industrial structure to low-energy and low-consumption industries.

………

The implementation of the Guidelines further clarifies the standards and principles of the green credit policy in the banking industry. Therefore, it is considered to be the first domestic regulatory document dedicated to green credit and the core of China's green credit system(Liu et al., 2019). The introduction and implementation of the green credit policy have broadened the scope of capital investment driven the flourishing of green industries and the sustainable development of general industries, resulting in new growth points for economic development.”

 

4-  Methodology and empirical results. The novelty and contribution adopted model should be highlighted. If possible, the author could add the conceptual framework to show the methodological procedure at a glance. The discussion could be enhanced with additional outcomes of /comparisons with other studies (more recent studies within 2019, 2020 or 2021). Are your results aligned with those of other studies in the field? Yes, no, why, Please discuss and explain with more recent papers.

Reply:

Thanks for your instructive suggestions. We will describe our revisions one by one. Referring to experts' opinions, we summarized the methods and compared the empirical results with the latest research, and the conclusion is consistent with most of the literature.

 

273. Methodology. (The corresponding revision is on Page5- 6, lines 242-273.)

“In this paper, the implementation of the green credit policy is treated as a quasi-natural experiment. Following Yang et al.(2020) and Yao et al.(2021), whose analyses are similar to our research, we also use a DID model to address our empirical issue. The difference-in-difference model (DID) is widely used to evaluate policy effects for its effectiveness of causal identification. The empirical results may be biased due to the heterogeneity of business performance and industrial scale of different firms, thus failing to reflect the real policy effect. To address this issue, we employ the propensity score matching method (PSM) developed from Heckman (1976), Rosenbaum and Rubin (1983) to remove sample selection bias. PSM can solve sample selection bias, but it cannot avoid the endogeneity problem due to the omission of variables. Meanwhile, the DID can solve the endogeneity problem well and derive policy treatment effects but without the function of solving sample bias well. Therefore, the PSM-DID method, which combines propensity score matching and difference-in-difference (DID), is used in this paper to conduct the study. First, we use PSM to find the control group closest to the experimental group in terms of control variables such as firm financial data and then perform DID regression using the matched experimental groups and control groups. The basic regression model is constructed as follows.”

 

 

7. Empirical results. (The corresponding revision is on Page 7. Lines 333-335; Page 9, Line 399-401.)

“Following Hu et al. (2020), this paper uses DID and PSM-DID models to test the impact of the green credit policy implementation on firm green innovation. The baseline regression results are shown in Table 2. Specifically, columns (1) and (2) are the regression results of the DID model. Column (1) is the result without control variables, and column (2) is the result of firm control variables. To exclude the effect of heterogeneity on firm outcomes due to different firms' business performance, industry size, etc., we match the sample with propensity scores before DID. Columns (3) and (4) are the regression results after PSM matching, where column (3) is the result column without control variables and (4) adds the firm control variables. The regression results from column (1) to column (4) re-veal that the green credit policy significantly contributes to firms' green innovation, either before or after matching or with or without the inclusion of firm control variables. The above results are similar to the results of Cai et al.(2020). The results of the basic regression in Table 2 verify Hypothesis 1 that the implementation of the green credit policy promotes green innovation in heavy-polluting firms.”

“The regression results are shown in columns (1) and (3) of Table 3. Column (1) is the result of the DID model, and column (3) is the result of running the PSM-DID model. As can be seen in Table 3, the results are all significantly negative, indicating that the implementation of the green credit policy has a significant inhibitory effect on the proportion of heavy-polluting firms obtaining long-term loans. This also shows that the introduction of the green credit policy inhibits the possibility of heavy-polluting firms obtaining preferential financing from banks, which verifies our hypothesis 2, which is consistent with the result of Xu and Li(2020) that the green credit policy reaches its goal by raising firms’ debt financing costs.”

 

5-The policy implication and conclusion section: The authors are recommended to provide practical policy to help the esteemed reader. This Section should be expanded with research limitations and recommendations to future research.

Reply:

Thanks for your instructive suggestions. We will describe our revisions one by one.

 

543. Conclusion. We revised our conclusion in a more straightforward way. (The corresponding revision is on Page 13, Line 525-543.)

“Using a dataset covering Chinese A-share listed industrial firms from 2008 to 2019, we study the effect of the green credit policy on firms' green innovation with a DID model. The results show that (1) The implementation of the green credit policy promotes green innovation in heavy-polluting firms; (2) The green credit policy can provide an impetus for firm innovation and transformation, and promote firm green innovation by reducing the financing space of heavy-polluting firms; (3) The implementation of the green credit policy pushes heavy-polluting firms to transform and upgrade the green innovation capability; (4) The heterogeneity analysis shows that the promotion effect of the green credit policy on firms' green innovation is more significant for state-owned firms and large-scale firms, but not for non-state-owned firms and small-scale firms. According to the results concluded above, we can say that green credit policy plays a positive role in promoting firms’ green innovation and help with environmental improvement. The analysis of it means a lot, but it still has something that needs to be improved by the government.”

 

B.The part of research limitations and recommendations to future research.(The corresponding revision is on Page 14, Line 571-576)

“Meanwhile,the limitation of this paper is that the variables may have trend differences that make interference in the identification of the disposition effect. Therefore, we can use the Difference-in-Difference-in-Difference (DDD) model to control the interference of trend differences on the identification of the disposition effect by introducing a new control group to further explore the net effect of green credit policy on firms' green technology innovation.”

 

 

 

6-The authors require to follow the consistent referencing method throughout the paper.

Reply:

Thanks for your instructive suggestions. We apologize for the inconsistency in the reference method due to our oversight, and we have made the change. We have checked the reference methods to make sure that all are consistent.

 

7- All equations need an appropriate reference.

Reply:

Thanks for your instructive suggestions. We have focused on this issue and modified it according to experts' opinions

 

 

8-The authors need to suggest future recommendation that is practically applicable and helpful for countries understudies, instead of proposing the general recommendation.

Reply:

Thanks for your instructive suggestions. We have revised our recommendation to be more applicable and helpful. Based on the experts' suggestions, we have revised the policy recommendations section and proposed relevant policy recommendations that are more applicable and helpful to the findings of this paper. (The corresponding revision is on Page 13-14, Line 544-576) .The following is the specific content that we revised in the article

 

“Our results can be of important implications by summarizing the following policy suggestions. First, the government should continue to enforce green credit policy as environmental regulation. According to our empirical results, green credit policy has a positive contribution to firms' green transformation development. However, since China's current environmental regulatory policies are still command-and-control oriented, firms show more passive and stressful responses, while proactive and strategic responses appear to be insufficient. Also, the government should change the policy focus from guiding to specific implementation terms to improve the operability of green credit policy. Further, the government should also clarify the objectives of the green innovation progress effect and pay more attention to the optimal effect of the policy. Moreover, the government should develop suitable policy implementations based on the local firms' development.

Second, improve the financial constraints and incentives mechanism. In our analysis of green credit policy's mechanisms about firms' green innovation, we find that financing constraints and firm investment positively contribute to firm green innovation transformation. Green credit policy can increase the cost of debt financing for firms, making fewer projects available for heavy-polluting firms to finance and lowering the level of investment. Heavy-polluting firms must accelerate their industrial transformation and upgrade and improve their credit financing capacity to obtain loans from banks. Therefore, in implementing the green credit policy, we should guide firms to improve their financial constraints and guide them to accelerate their transformation and upgrading to achieve sustainable development.

Third, differentiated policies according to the heterogeneity of enterprises. According to our empirical study, the promotion effect of green credit policy on non-state and small-scale firms is not significant yet. This is mainly because these firms lack policy resources and correct direction guidance compared with state-owned firms and large-scale firms. Therefore, in implementing the green credit policy, appropriate policy terms should be formulated according to the different characteristics of firms to achieve precise positioning. For example, the government can stipulate that banks should give certain concessions to specific firms when lending so that non-state and small-scale firms have more capital and more adequate resources to invest in projects for green transformation. In this way, firms with different characteristics will be actively encouraged and guided to carry out green innovation. Then, we can help green credit policy to fully play its positive role in inspiring green innovation of different characteristics entities.”

 

9-The paper must clearly express its case, measured against the technical language of the field and the expected knowledge of the journal's readership. Therefore, attention must be paid to the clarity of expression and readability, such as sentence structure, jargon use, acronyms.

Reply:

Thanks for your instructive suggestions. We have revised our manuscript carefully. In the revision, we concise our language, restructured our literature review, and modified our contributions. Also, we use Grammarly to check out our grammatical and typo issues.

 

 

 

Author Response File: Author Response.pdf

Round 2

Reviewer 1 Report

Thanks for performing the required changes. I am fine with the revised version of the manuscript.

Reviewer 2 Report

All suggested changes are incorporated and I am satisfy

Reviewer 3 Report

Happy to see that the authors addressed all the reviewers' comments in the text. The revised paper is more comprehensive and practical. My final decision on the revised paper is "Accept".