Facilitating or inhibiting? Financing platform debt and corporate green transformation

Abstract Local government debt and corporate green transformation are key issues in China's high-quality economic development. As the core carrier of local government's implicit debt, the role of financing platforms issuing urban investment bonds (UIBs) on corporate green innovation is a key entry point in resolving debt risks and promoting green transformation. This paper constructs an analytical framework from two channels: ability (financial support, lowering the corporate tax burden, and reducing pass-through expenditures) and willingness (willingness to green transformation, and the degree of sustainable development). The two form a trade-off mechanism; the ability channel will promote corporate green innovation, and the willingness channel will inhibit corporate green innovation. This paper analyzes A-share listed firms from 2017–2023. We find that the UIBs significantly promote green innovation, confirming the dominance of ability effects. The positive impact strengthens with higher sci-tech expenditure, industrial upgrading, and environmental regulation. The promotion effect of green UIBs on green innovation is significantly more potent than that of non-green UIBs, and UIBs inhibit strategic green innovation and promote substantive green innovation. This paper helps to realise the synergistic promotion of the prevention and control of hidden debt risks of local governments and the green transformation of enterprises, and provides policy references for the high-quality development of the economy.