Increasing short-term lending for long-term investment under environmental pressure: evidence from China's energy-intensive firms.

To improve environmental quality and reduce pollutant emissions, China enacted the Environmental Protection Tax Law (EPTL) in 2018, leading to increase environmental pressure. Based on the data of energy-intensive firms listed in China's A-share market, this study examines firms' investment and financing behavior, increasing the short-term loans for long-term investment. Using the Difference-In-Differences (DID) method, empirical evidence supports the idea that environmental pressure causes energy-intensive firms to increase short-term lending for long-term investment (SLLI). Specifically, environmental pressure leads firms to increase long-term investment activities, such as fixed assets, environmental protection, and innovation. In contrast, long-term loans decrease, forcing firms to use short-term loans for long-term investments. Affected by rising environmental pressure, firms with low financing constraints are more likely to use short-term loans instead of long-term loans to support long-term investment activities, while firms with high financing constraints cannot obtain short-term loans. Our findings provide critical insights for promoting coordination between financial and environmental policies.