Disclosure dilemmas: How environmental information influences corporate financing

Difficult and costly financing has served as a significant constraint on enterprise development, particularly due to the elevated financing costs associated with heavily polluting enterprises. Currently, the capital market is imperfect, and the economic and legal systems are inadequate. Consequently, enterprises disclose less environmental information, or information of low quality, leading to asymmetric information in the market. Investors will certainly curtail their ventures, which increases capital costs, aggravating the problem of financing constraints in the market. This paper considers the information disclosure of A-share listed companies in the manufacturing industry from 2012 to 2019 as a research sample, and the Environmental Protection Law as an exogenous shock. A multi-temporal difference-in-difference (DID) model and a moderated model are structured to study the influence of mandatory disclosure of environmental information by heavily polluting enterprises on their financing constraints after the introduction of the new Environmental Protection Law, and to analyze the mechanism. The results of this study show that (1) mandatory environmental information disclosure can inhibit corporate financing constraints, and the inhibitory effect differs across different enterprises; (2) executive incentives weaken the inhibitory effect of mandatory environmental information disclosure on financing constraints and negatively moderate the negative correlation between the two; and (3) concentrated equity strengthens the inhibitory effect of mandatory environmental disclosure on financing constraints and positively moderates the negative correlation between the two. Based on this, we make policy recommendations in terms of developing disclosure plans, executive pay incentives, and equity pooling.