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Does water rights trading affect corporate investment? The role of resource allocation and risk mitigation channels

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  • Liu, Duan
  • Yu, Nizhou
  • Wan, Hong

Abstract

This study investigates how the water rights trading (WRT) policy affects corporate investment in China. Recent literature mainly discusses the environmental implications of the WRT policy, while the economic consequences are still unclear. Hence, using a rich dataset of 22,321 Chinese firms from 2009 to 2019 and employing a difference-in-differences (DID) approach, we examine the impact of the WRT pilot on corporate investment. The findings show that WRT policy significantly stimulates corporate investment through two mechanisms: optimizing resource allocation and mitigating corporate risk. Furthermore, we provide evidence that the effect of the WRT policy is more prominent in national WRT pilots, areas with higher levels of water endowments and economic development, and non-state-owned firms. Overall, our conclusions provide evidence of the effectiveness of the WRT policy at the firm level.

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  • Liu, Duan & Yu, Nizhou & Wan, Hong, 2022. "Does water rights trading affect corporate investment? The role of resource allocation and risk mitigation channels," Economic Modelling, Elsevier, vol. 117(C).
    • Handle: RePEc:eee:ecmode:v:117:y:2022:i:c:s0264999322003005
    DOI: 10.1016/j.econmod.2022.106063
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