NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Bank Liquidity, Credit Supply, and the Environment

Ross Levine, Chen Lin, Zigan Wang, Wensi Xie

NBER Working Paper No. 24375
Issued in March 2018
NBER Program(s):Corporate Finance, Environment and Energy Economics

We evaluate the impact of the credit conditions facing corporations on their emissions of toxic air pollutants. Exploiting cross-county, cross-time shale discoveries that generated liquidity windfalls at local bank branches, we construct measures of (1) the degree to which banks in non-shale counties, i.e., counties where shale was not discovered, receive liquidity shocks through their branches in shale counties and (2) the degree to which a corporation in a non-shale county has a relationship lender that receives liquidity shocks through its branches. From both the county- and firm-level analyses, we discover that positive shocks to credit conditions reduce corporate pollution.

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Document Object Identifier (DOI): 10.3386/w24375

 
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