Credit rationing and sustainable activities: A firm-level investigation

This paper studies whether differences in credit rationing exist, based on firms' activities in sustainable sectors, recently identified by the European Commission in the EU Taxonomy Regulation. To this aim, we use the World Bank Enterprise Surveys, including a sample of more than 28,900 firms from 66 developing and emerging countries, over the waves 2006-2020. We find that firms operating in sustainable sectors are around 1.6% less likely to be financially constrained, controlling for other firm-level characteristics. The magnitude of the effect is larger for small and young firms. Moreover, our results show that firms operating in sustainable sectors are more likely to receive external financing if they operate in countries where environmental issues are more relevant and where financial systems and the business environment are less developed.