Financial Frictions and Pollution Abatement Over the Life Cycle of Firms
Prof. Min FANG
Assistant Professor of Economics, Department of Economics
University of Florida
Date: 31 October 2025 (Friday)
Time: 11:00-12:30
Venue: E22-G015
Host: Prof. Leona LI, Assistant Professor in Business Economics
Abstract
Using US firm-level data, we document significant differences in pollution abatement activities over the life cycle of firms. Under financial constraints, smaller and younger firms invest more in capital and engage less in pollution abatement. As they accumulate more net worth, their abatement activities accelerate, and their emission intensity decreases. Motivated by this evidence, we develop and quantify a heterogeneous firm model to study the dynamics among financial frictions, capital investment, and pollution abatement. In the model, smaller and younger firms prefer capital investment over pollution abatement because the returns from capital investment are higher than those from pollution abatement. Such low returns of abatement expenditures come from both a lack of collateralizability and an increasing return to scale of operating abatement activities. More importantly, we demonstrate that financial frictions render environmental regulation suboptimal at any level, reducing the aggregate welfare gain by 40%. Finally, we show that even without monitoring, green loan policies are considerably effective in reducing emission intensity.
Speaker
Prof. Min FANG is an Assistant Professor of Economics at the University of Florida, where he has served since 2023. He earned his Ph.D. in Economics from the University of Rochester. His research spans applied macroeconomics, with interests in macro-finance, monetary economics, spatial economics, and the economics of technology. His work has been published or provisionally accepted in the Journal of Monetary Economics, International Economic Review, and European Economic Review.
All are welcome!
