FinTech and Green Credit Development—Evidence from China
Round 1
Reviewer 1 Report
I would like to congratulate the authors for choosing a very topical and important research thread, which is the issue of FinTech in the context of the development of green loans for companies that generate significant environmental pollution.
Key observations and recommendations:
1. There are many types of FinTech companies in the world. In the article presented here, these companies should be systematised, also taking into account the characteristics of the companies studied by the authors of the article.
2. Green credit is a concept that is understood differently, both by financial institutions and by public regulators in different countries. More details should be provided on what financial instruments are included in the study presented by the authors.
(3) The authors presented an interesting research method using statistical analysis. Against this background, the conclusions are very general. It would be worthwhile to consider showing the benefits (perhaps also in numerical terms) for the different stakeholders in the process, in particular FinTechs and banks.
Author Response
Dear reviewer:
We deeply appreciate your valuable and constructive comments on our paper “FinTech and Green Credit Development——Evidence from China”. We have studied your insightful comments carefully and tried our best to modify our manuscript, and the following are point-by-point responses to the your advice. In the revised version, changes to our manuscript are highlighted by using blue-colored text. For your convenience, we have reproduced the comments in italics; our responses follow the comments.
I would like to congratulate the authors for choosing a very topical and important research thread, which is the issue of FinTech in the context of the development of green loans for companies that generate significant environmental pollution.
Comment1: There are many types of FinTech companies in the world. In the article presented here, these companies should be systematised, also taking into account the characteristics of the companies studied by the authors of the article.
Response:
We appreciate your comment. It is truly necessary to mention what kind of FinTech companies that should be mainly discussed in our paper. We add to the definition and key characteristics of FinTech companies in China. The paper has been revised as follow (see the revised manuscript section 3.1.2):
“Considering there are many types of FinTech companies in the world, and they play different roles. However, in China, due to strict lending licenses, FinTech companies mainly play the role of helping lenders in the financial market with information gathering, screening and decision making, and as we mentioned in the introduction, they play a crucial role to financial institutions as a "technology spillover effect". Referring to Xie and Zhu (2021), we set city-level FinTech development as the explanatory variable. Referring to the Financial Stability Board’s definition, we screened FinTech business information from TianYanCha Website. The criteria for screening information were from Shen and Guo (2015). The core explanatory variable FinTech is set as follows. First, we match the industrial and commercial registration information of all FinTech-related enterprises. Second, we prevent the emergence of shell companies and eliminate the sample of enterprises that have been in operation for less than one year, or have been dissolved or revoked. Third, we use regular expressions in the business scope. We first match the business scope related to “finance,” “insurance,” “credit,” and “payment,” and remove irrelevant samples and companies with prohibited phrase prefixes in the keywords. Finally, we obtain FinTech development at the city level and use the natural logarithm of FinTech: the greater the number of FinTech firms, the higher the level of local FinTech development.”
Comment 2: Green credit is a concept that is understood differently, both by financial institutions and by public regulators in different countries. More details should be provided on what financial instruments are included in the study presented by the authors.
Response:
We think your comment is reasonable and add the content of what financial instruments related to green credit are included in the study. The paper has been revised as follow (see the revised manuscript the first paragraph of section 1):
“Financial support from the banking sector plays an essential role in sustainable development of China’s green economy. In the process of transforming China’s economic structure, economic growth in pursuit of short-term gains has caused significant environmental pollution, which has hindered future economic development. Ecological civilization and environment-friendly development have become principles of high-quality economic development. Therefore, the government could determine how to rationally allocate funds to enterprises in need while maintaining a sustainable green economy. In 2007, with the announcement of the “Opinions on Implementing Environmental Protection Policies and Regulations to Prevent Credit Risks” in China, the government first proposed the concept of “green credit” with the aim of directing green funds to environmentally friendly enterprises. Green credit, as an important part of sustainable financing or environmental financing in China, mainly refers to loans issued by financial institutions to enterprises for investment in green environmental protection, clean energy, circular economy, infrastructure and green upgrading and services of traditional industries. The main purpose of green credit is to restrict the provision of financing to enterprises with high energy consumption and pollution that do not meet environmental protection standards. Green credit volumes among the major banks in China achieved 9.66 trillion RMB in 2018, according to the China Green Finance Development Report (2018) released by the People’s Bank of China. The onset of green credit started later in China than that in other Western countries. Due to the high requirements for the environmental governance and credit repayments of companies, green credit has a strong screening function. Consequently, green credit has a strong crowding-out effect on high-emission and high-pollution enterprises that cannot meet environmental standards.”
Comment 3: The authors presented an interesting research method using statistical analysis. Against this background, the conclusions are very general. It would be worthwhile to consider showing the benefits (perhaps also in numerical terms) for the different stakeholders in the process, in particular FinTechs and banks.
Response:
We acknowledge that our conclusions are overly general and not consistent with our statistical analysis. This paper has been revised as follow (see the revised manuscript the first paragraph of section 5.1)
“This study explores the impact of FinTech on green credit using data from listed polluting companies and regional data in China. The empirical results show that FinTech enhance green credit development, including short-term and long-term green credit. Specifically, approximately 1% more FinTech companies of the total quantity in the regional could increase the level of green credit by 1.187%. Regarding the information asymmetry mechanism, the effect of promoting green credit development can be achieved by enhancing environmental information disclosure and improving media and investor attention. Considering the relationship between FinTech and banks, we also find that the effect of FinTech on green credit allocation efficiency is significant for green credit development, including short-term and long-term green credit development. In details, 1% more FinTech companies of the total quantity in the regional will increase approximately the green credit development by 1.249%, which means that FinTech can improve the allocation efficiency of local banks and thus improve green credit development. The heterogeneity analysis shows that FinTech can enhance green credit development in regions with higher government environmental targets, SMEs with lower carbon emissions, and firms with higher ESG scores.”
Again, thank you very much for your positive comments and valuable suggestion to improve the quality of our manuscript. Your comments and suggestion have deepened our thinking on this research topic. We would be happy to make any other modifications, and we greatly appreciate your help.
Paper authors
March.17, 2023
Author Response File: 
Author Response.pdf
Reviewer 2 Report
I am very positive about this paper, since it is dealing with a relevant topic with a novel approach. The theoretical part is well-articulated and the empirical part is robust, based on a large database and checked through important robustness checks as the one about possible endogeneity. Minor, but necessary, revisions should be implemented.
1. More should be discussed about EID (Section 2.2, p.4); here below some references to be discussed:
-Dhaliwal, D., Li Zhen, O., Tsang, A., & Yang, Y. (2014). Corporate social responsibility disclosure and the cost of equity capital: The roles of stakeholder orientation and financial transparency. Journal of Accounting and Public Policy, 33, 328–355.
-Qiu, Y., Shaukat, A., & Tharyan, R. (2016). Environmental and social disclosures: Link with corporate financial performance. The British Accounting Review, 48, 102–116.
2. The allocation efficiency mechanism (Section 2.3) should be discussed in more detail, trying to disentangle the efficiency gains within the bank on the one hand (measured by DEA), and the efficiency gains into the green credit on the other hand.
3. Section 3.1.1: the proposed measure of the level of green credit development is clumsy and unclear, please qualify.
4. Among the control variables (section 3.1.3), ownership structure (so important in the Chinese context), political connections and board diversity should be considered; if data are not available, at least the role of the ownership structure and board diversity should be discussed and data limitations admitted. Here below some references to be discussed:
-Ali, S., ur Rehman, R., Yuan, W., Ahmad, M.I. and R. Ali (2022). Does foreign institutional ownership mediate the nexus between board diversity and the risk of financial distress? A case of an emerging economy of China. Eurasian Business Review, 12, 553–581.
-Shahab, Y., Ntim, C. G., Chengang, Y., Ullah, F., & Fosu, S. (2018). Environmental policy, environmental performance, and financial distress in China: Do top management team characteristics matter? Business Strategy and the Environment, 27, 1635–1652.
Author Response
Dear reviewer:
We deeply appreciate your valuable and constructive comments on our paper “FinTech and Green Credit Development——Evidence from China”. We have studied your insightful comments carefully and tried our best to modify our manuscript, and the following are point-by-point responses to the your advice. In the revised version, changes to our manuscript are highlighted by using blue-colored text. For your convenience, we have reproduced the comments in italics; our responses follow the comments.
I am very positive about this paper, since it is dealing with a relevant topic with a novel approach. The theoretical part is well-articulated and the empirical part is robust, based on a large database and checked through important robustness checks as the one about possible endogeneity. Minor, but necessary, revisions should be implemented.
Comment1:
More should be discussed about EID (Section 2.2, p.4); here below some references to be discussed:
-Dhaliwal, D., Li Zhen, O., Tsang, A., & Yang, Y. (2014). Corporate social responsibility disclosure and the cost of equity capital: The roles of stakeholder orientation and financial transparency. Journal of Accounting and Public Policy, 33, 328–355.
-Qiu, Y., Shaukat, A., & Tharyan, R. (2016). Environmental and social disclosures: Link with corporate financial performance. The British Accounting Review, 48, 102–116.
Response:
We appreciate your argument that we should discuss more in the EID, and we have a detail discussion about EID and add the references mentioned in your comments to our paper. The paper has been revised as follow (see the revised manuscript section 2.2):
“Sustainability reporting, such as climate-related reporting and GHG emissions reporting are crucial for government decision-making and corporate governance, and we mainly discuss the impact of these reporting on companies. Environmental Information Disclosure (EID) is crucial for a company in need of a loan, as competitive advantages gained through a strong positive reputation can manifest themselves in the form of enhanced qualifications. Additionally, Dhaliwal et al. (2014) find that CSR (Corporate social responsibility) disclosure can decrease the cost of equity capital of banking industry. Therefore, since EID promotes the utility of both lenders and borrowers, EID plays a key role in determining eligibility for green credit. EID can be realized either through “certification” by third parties which evaluate companies’ products, production processes, and management procedures, or through “self-reporting” without external verification. Since 2001, China’s polluting listed companies have been required to disclose environmental risks in their initial public offerings (IPOs). In 2010, the “Guidelines for Environmental Information Disclosure of Listed Companies” stipulated that companies should disclose environmental information in a timely manner. We believe that increasing EID can help the issuance of green credit, as it will cost financial institutions less to dig out environmental data.”
Comment 2:
The allocation efficiency mechanism (Section 2.3) should be discussed in more detail, trying to disentangle the efficiency gains within the bank on the one hand (measured by DEA), and the efficiency gains into the green credit on the other hand.
Response:
We think your comment is reasonable and add the detailed contents of DEA method and green credit efficiency measurement method. The paper has been revised as follow (see the revised manuscript of section 2.3):
“In addition to the information asymmetry mechanism, the impact of FinTech’s green credit allocation efficiency mechanism on green credit development deserves consideration. Despite the abundance of research on credit allocation efficiency in the banking industry, the potential role of FinTech in influencing the development of green credit has received little attention. Previous literature mainly applies non-parametric Data Envelopment Analysis (DEA) to measure credit allocation efficiency, and some studies apply parametric Stochastic Frontier Analysis (SFA); based on loan data, non-performing loan ratio and loan-to-deposit ratio are also applied to measure the credit allocation efficiency. The DEA and SFA methods are used to estimate production or cost functions in economics, using input and output indicators to measure the weights of indicators and thus analyze whether their weights meet optimal efficiency. Prior literature has typically used banks' staffing inputs and pre-credit profits to measure the overall credit efficiency of banks. However, the specific ratio of green credit to individual banks is still not fully disclosed in China, which makes it difficult for DEA and SFA methods to accurately measure the efficiency of green credit allocation. Therefore, we will use the ratio of economic growth to green credit growth for our measure of green credit allocation efficiency.
The impact of FinTech on credit allocation efficiency has been debated in the past. On one hand, it has been argued that FinTech has inefficient capital allocation efficiency because it causes competition in the credit market and is caught in an equity efficiency dilemma. On the other hand, it has been argued that FinTech can improve lending cost efficiency and technology, making commercial banks more efficient, reducing bank operating costs, increasing service efficiency, and improving traditional business. We believe that promoting FinTech can enhance green credit development by increasing green credit allocation efficiency.”
Comment 3:
Section 3.1.1: the proposed measure of the level of green credit development is clumsy and unclear, please qualify.
Response:
We acknowledge that our description of green credit development is clumsy and we qualify it. We put the criteria to select companies to footnote, making the main content clear, and we change some verbs to make the sentences easy to understand. This paper has been revised as follow (see the revised manuscript of section 3.1.1):
“We set the explained variable as the green credit level of polluting enterprises. First, we select quarterly data of polluting and listed enterprises1 in China from 2012 to 2021 and refer to and improve the measurement method of Zhang et al. (2021). Second, the level of green credit development is measured by dividing the enterprise’s credit by the ratio of regional credit for environmental protection projects to the total regional credit. The level of green credit development in our study is determined by the level of green development at the regional level combined with the level of credit at the enterprise level. The higher the value, the better the credit development of the enterprise.
1(footnote)According to the Guidelines for Information Disclosure Protection of Listed Companies issued by the Ministry of Environmental Protection in China, some specific industries are selected as polluting enterprises: Mining, textile, paper products, petroleum, chemicals and chemical fibers, ferrous(non-ferrous) metal smelting and processing, rubber and plastics, pharmaceuticals, and fur products.”
Comment 4:
Among the control variables (section 3.1.3), ownership structure (so important in the Chinese context), political connections and board diversity should be considered; if data are not available, at least the role of the ownership structure and board diversity should be discussed and data limitations admitted. Here below some references to be discussed:
-Ali, S., ur Rehman, R., Yuan, W., Ahmad, M.I. and R. Ali (2022). Does foreign institutional ownership mediate the nexus between board diversity and the risk of financial distress? A case of an emerging economy of China. Eurasian Business Review, 12, 553–581.
-Shahab, Y., Ntim, C. G., Chengang, Y., Ullah, F., & Fosu, S. (2018). Environmental policy, environmental performance, and financial distress in China: Do top management team characteristics matter? Business Strategy and the Environment, 27, 1635–1652.
Response:
Your suggestion to include control variables on corporate structure and the Chinese institutional context in our study makes it more comprehensive. We do this in the following way:
First, we add three relative control variables into the regressions. Relating to ownership structure, we choose a dummy variable for whether the firm is a state-owned enterprise or not; relating to political connections, we set an index referring to Fan et al. (2007); about board diversity, we set the ratio of the firm's independent directors to the number of board members. Additionally, we refer your reference in your comment to our paper.
Second, we remake the descriptive statistic table and run the regressions again after adding the new control variables. You can review all the tables in the revised paper.
Third, after adding new control variables, we find that most of the conclusions are remain the same, and at the same time the new results in Table 5 make the green credit allocation efficiency mechanism assumption from partly verified to verified.
After adding control variables, this paper has been revised as follow (see the revised manuscript of section 3.1.3):
“Referring to the previous literature and the measurement of green finance development level and considering ownership structure, political connections and board diversity in China, we obtain relevant control variables: (1) at the enterprise level, we set the natural logarithm of enterprise asset size (Size), return on equity (ROE), return on assets (ROA), asset growth rate (AG_Rate), main business income growth rate (MBIG_Rate), net profit growth rate (NPG_Rate), Tobin's Q ratio (Tobin's Q), a dummy variable for whether the firm is a state-owned enterprise or not(Stat_Own), the degree of political connections of the firm's executives referring to Fan et al.(2007)(PCLevel)1, and the ratio of the firm's independent directors to the number of board members(Ind_Ration);…..
1(footnote)Referring to Fan et al.(2007), If the president or CEO of the enterprise has served or is currently serving in the Chinese government, the Party Committee, the Standing Committee of the National People's Congress or the Chinese People's Political Consultative Conference, the PCLevel is assigned a value at five levels: PCLevel at section-level is 1, PCLevel at division-level is 2, PCLevel at department-level is 3, PCLevel at ministry-level is 4, and no political connection, PCLevel takes the value of 0. If the president or CEO of an enterprise has been or is currently a party representative, NPC deputy or CPPCC member, the PCLevel is also assigned at five levels: PCLevel at the district and county level or below is 1, PCLevel at the municipal level is 2, PCLevel at the provincial level is 3, and PCLevel at the national level is 4, with no political connection, PCLevel takes the value of 0.”
Again, thank you very much for your positive comments and valuable suggestion to improve the quality of our manuscript. Your comments and suggestion have deepened our thinking on this research topic. We would be happy to make any other modifications, and we greatly appreciate your help.
Paper authors
March.17, 2023
Author Response File: Author Response.pdf
Reviewer 3 Report
I like reading the paper "FinTech and Green Credit Development——Evidence from China". I have observed a few issues;
(1) The references are not in order.
(2) There should be a separate section for conclusion, Limitations, and Future research agenda.
(3) Appreciate to use thee data from e CSMAR database, National Bureau of Statistics, People’s Bank of China, Ministry of Science and Technology
(4) please refer some recent citation from FinTech and Banking. Dwivedi, P., Alabdooli, J.I. & Dwivedi, R. Role of FinTech Adoption for Competitiveness and Performance of the Bank: A Study of Banking Industry in UAE. JGBC 16, 130–138 (2021). https://doi.org/10.1007/s42943-021-00033-9
(5) it would be better to related FinTech, Green Credit and Competitivness because evantually it lead to competitivness of banking industry. or may include in the limitations.
Author Response
Dear reviewer:
We deeply appreciate your valuable and constructive comments on our paper “FinTech and Green Credit Development——Evidence from China”. We have studied your insightful comments carefully and tried our best to modify our manuscript, and the following are point-by-point responses to the your advice. In the revised version, changes to our manuscript are highlighted by using blue-colored text. For your convenience, we have reproduced the comments in italics; our responses follow the comments.
I like reading the paper "FinTech and Green Credit Development——Evidence from China". I have observed a few issues.
Comment1:
The references are not in order.
Response:
We appreciate your observation of our references. We have checked all the references again to make sure our references are in the right order. In addition, we have to remind you kindly that we will refer some references many times in our paper since this paper are good references to our study, and it may seem that the references are in the wrong order.
Comment 2:
There should be a separate section for conclusion, Limitations, and Future research agenda.
Response:
We think your comment is reasonable and add the content of limitations and future research agenda in our study. The paper has been revised as follow (see the revised manuscript the first paragraph of section 5.2 and section 5.3):
“5.2 Limitations
This study has three main limitations, which can be optimized in future research. First, data disclosure on green credit in China is incomplete, and we do not have access to the lender and time spent on pre-loan review of green credit for a specific firm, making it difficult for us to directly measure the efficiency of green credit allocation. Second, due to the unavailability of internal bank data, we are unable to measure the change in bank competitiveness by FinTech, which makes it difficult to conduct further analysis.
5.3 Future Research Directions
In the future, with the implementation of increasingly stringent environmental protection policies and information disclosure policies, banks and enterprises will improve their voluntary disclosure of access to green credit, and we will conduct more detailed measurements of corporate green credit development to deepen the research. The investment behavior of enterprises using green credit will also receive our attention. Whether and how FinTech can deter enterprises' fraudulent lending behavior, so that the environmental benefits brought by green credit can be implemented, is the direction of our future research.”
Comment 3:
Appreciate to use thee data from e CSMAR database, National Bureau of Statistics, People’s Bank of China, Ministry of Science and Technology.
Response:
We appreciate your acknowledgement of the database sources we used and we will endeavor to use official data sources in future studies.
Comment 4:
Please refer some recent citation from FinTech and Banking. Dwivedi, P., Alabdooli, J.I. & Dwivedi, R. Role of FinTech Adoption for Competitiveness and Performance of the Bank: A Study of Banking Industry in UAE. JGBC 16, 130–138 (2021). https://doi.org/10.1007/s42943-021-00033-9.
Response:
We add the reference to section 2.1.1. The paper has been revised as follow (see the revised manuscript section 2.1.1):
“Based on the rapid development of information and communication technology (ICT), FinTech can play a crucial role as a link between finance and technology, which can make an effort in financial activities as it can support financial institutions, investors, and government efficiency as a promoter. Especially, FinTech can improve competitiveness and performance of the banking industry [21]. When considering the promotion of sustainable economics enhanced by FinTech, FinTech can support sustainable finance by reducing transaction costs between lenders and borrowers, increasing green capital efficiency, reducing information asymmetries and bank credit risk, improving green innovation, and completing green information sharing systems. However, FinTech requires regulations to limit its impact on the financial market, especially in developing countries, as some FinTech innovations are still unregulated, such as crowdfunding and peer-to-peer (P2P). Governments in developing countries are creating an environment conducive to FinTech innovation, but it is necessary to ensure sufficient regulation and supervision of these innovations.
[21] Dhaliwal, D.; Li, O.Z.; Tsang, A.; Yang, Y.G. Corporate social responsibility disclosure and the cost of equity capital: The roles of stakeholder orientation and financial transparency. J. Account. Public Policy 2014, 33, 328--355.”
Comment 5:
It would be better to related FinTech, Green Credit and Competitivness because evantually it lead to competitivness of banking industry. or may include in the limitations..
Response:
We really like your suggestion and we are sure that the enhancement of green credit by FinTech for banks will lead to an increase in their competitiveness. Unfortunately, we do not have similar data to measure the competitiveness of the banking sector. As Dhaliwal et al. (2014), interviews were conducted to collect empirical data on the competitiveness of bankers in Dubai, but it is relatively difficult to implement such surveys in China. Additionally, it is difficult to examine FinTech, green credit and competitiveness at the data level in this paper due to the lack of internal data disclosure by banks. We have written this aspect of the study into the limitations. The paper has been revised as follow (see the revised manuscript section 5.2):
“5.2 Limitations
This study has three main limitations, which can be optimized in future research. First, data disclosure on green credit in China is incomplete, and we do not have access to the lender and time spent on pre-loan review of green credit for a specific firm, making it difficult for us to directly measure the efficiency of green credit allocation. Second, due to the unavailability of internal bank data, we are unable to measure the change in bank competitiveness by FinTech, which makes it difficult to conduct further analysis. Third, the promotion of green credit by FinTech essentially improves the efficiency and accuracy of lenders' judgments on the environmental qualifications of enterprises. This paper focuses on the improvement of the efficiency of FinTech in judging green credit, but it is difficult to measure the improvement of the accuracy of FinTech in judging the environmental qualifications of borrowers because banks have specific review criteria and internal data for different types of enterprises.”
Again, thank you very much for your positive comments and valuable suggestion to improve the quality of our manuscript. Your comments and suggestion have deepened our thinking on this research topic. We would be happy to make any other modifications, and we greatly appreciate your help.
Paper authors
March.17, 2023
Author Response File: Author Response.pdf
