By exploiting the staggered city-level establishment of specialized environmental courts in China as exogenous shocks and using a difference-in-differences research design, we find that an increase in the efficiency of environmental enforcement leads to a decrease in companies’ access to bank loans. The channel tests show that these same shocks lead to an increase in environmental litigation, operational and reputational risk. The cross-sectional analyses also reveal consistent evidence. Collectively, our findings suggest that the environmental mandate has important externalities for bank lending decisions, indicating that the costs of environmental enforcement go beyond reducing environmental pollution.

This study examines the relation between share pledging by controlling shareholders and optimism in analyst earnings forecasts. Using a sample of listed Chinese firms from 2007 to 2018, we find that analysts make more optimistic forecasts for firms whose controlling shareholders have pledged their shares for bank loans and whose share pledge ratio is high. This relation is stronger for firms with poor prior stock performance, for firms located in regions with a high level of marketization, and for analysts who have close connections with firms, but is weaker for reputable analysts and those from larger broker firms. In addition, analyst optimism becomes weaker when the share-pledging loan approaches the end of the term and when the analyst forecast date is closer to the earnings announcement, and becomes more pronounced when analysts make forecasts over a longer horizon. The results suggest that in cases of share pledging, the threat of losing controlling rights creates significant incentives for controlling shareholders to collude with analysts.