FINTECH THRUST SEMINAR | The Monitoring Costs of Green Lending
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The Monitoring Costs of Green Lending
Abstract:
Using pan-European credit register data, we analyze the sharp increase in public guaranteed lending (PGL) during the COVID-19 loan guarantee programs and show that banks leverage PGL to expand lending to low-emission firms. This behavior is driven by industries less affected by COVID-19, banks with ``browner" portfolios, and younger firms. Notably, compared to high-emission firms, banks' internal risk assessments in PGL to low-emission firms are less frequently updated and exhibit weaker predictive power for future credit quality deterioration, indicating lax monitoring efforts. These findings highlight the additional information production costs associated with green lending and shed light on why banks may be slow to transition to greener portfolios.
Luca X. Lin is a tenure-track assistant professor of finance at the State University of New York at Buffalo. Before joining SUNY Buffalo, he worked as an assistant professor at HEC Montreal in Canada. Professor Lin obtained his PhD from IESE Business School in Spain and was a visiting PhD student at London School of Economics. His research focuses on how financial institutions affect corporate behavior and has been published on top finance journals such as the Journal of Financial Economics, Journal of Financial Intermediation, Journal of Corporate Finance, and Review of Corporate Finance Studies. Outside of academia, Professor Lin is a CFA charterholder and has work experience in Western Union Global Headquarters in Denver, United States and GCU Academy in Cape Town, South Africa.