Abstract Between 2006 and 2017, 2,965 Chinese firms listed on the Shanghai/Shenzhen Stock Exchange have been studied to investigate whether better corporate environmental performance (CEP) leads to better access to capital and mitigates firms' financing constraints. It is hypothesized that better access to finance can be attributed to the increased government support due to enhanced firm political legitimacy and market legitimacy. Event studies find that the firms with better CEP suffer significantly lower finance constraints, and the evidence from the studies proves that firms' political legitimacy and market legitimacy are important in mitigating finance constraints. The results of the studies are confirmed by using two alternative measures of capital constraints and CEP, an instrumental variable approach, and a simultaneous equations approach.
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