Bank liquidity, credit supply, and the environment

Author / Creator

Levine, Ross author

Available as

Online

Summary

We evaluate the impact of the credit conditions facing corporations on their emissions of toxic air pollutants. Exploiting cross-county, cross-time shale discoveries that generated liquidity windfa...

We evaluate the impact of the credit conditions facing corporations on their emissions of toxic air pollutants. Exploiting cross-county, cross-time shale discoveries that generated liquidity windfalls at local bank branches, we construct measures of (1) the degree to which banks in non-shale counties, i.e., counties where shale was not discovered, receive liquidity shocks through their branches in shale counties and (2) the degree to which a corporation in a non-shale county has a relationship lender that receives liquidity shocks through its branches. From both the county- and firm-level analyses, we discover that positive shocks to credit conditions reduce corporate pollution.

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