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Effect of green financial reform and innovation pilot zones on corporate investment efficiency

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  • Yan, Cheng
  • Mao, Zhicheng
  • Ho, Kung-Cheng

Abstract

To the best of our knowledge, this is the first study to examine the effect of pilot green financial reform and innovation zones on corporate investment efficiency. To this end, we rely on a quasi-natural experiment of China's introduction of this pilot policy in 2017. Our sample covers A-share listed Chinese companies from 2015 to 2020, and the difference-in-difference (DID) methodology has primarily been used for analysis. Our findings suggest that firms' inefficient and excessive investments are significantly reduced in the pilot zones. Furthermore, we uncover the mediation effect of agency problems and R&D investment between the establishment of the pilot zones and firms' investment efficiency, reduction of agency problems, and an increase in R&D investment which improves the investment efficiency of firms. Moreover, the investment efficiency of firms with higher equity checks and balances and non-heavy polluters increased significantly, and the inefficient investment of non-state-owned firms and fewer institutional investors' shareholdings decreased significantly, which suggests that the green financial reform and innovation pilot zone has significant financing regulation and investment disincentive effects. Our study has vital policy implications for governments worldwide that have previously committed to and/or are participating in providing green finance incentives.

Suggested Citation

  • Yan, Cheng & Mao, Zhicheng & Ho, Kung-Cheng, 2022. "Effect of green financial reform and innovation pilot zones on corporate investment efficiency," Energy Economics, Elsevier, vol. 113(C).
    • Handle: RePEc:eee:eneeco:v:113:y:2022:i:c:s0140988322003371
    DOI: 10.1016/j.eneco.2022.106185
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    Cited by:

    1. Liu, Sheng & Wang, Yukai, 2023. "Green innovation effect of pilot zones for green finance reform: Evidence of quasi natural experiment," Technological Forecasting and Social Change, Elsevier, vol. 186(PA).
    2. Cen, Tao, 2023. "Green finance reform and stock price crash risk: Evidence from Chinese heavily polluting companies," Finance Research Letters, Elsevier, vol. 56(C).
    3. Zhang, Cheng & Zhou, Bo, 2023. "Where should the money go? The green effect of governmental guidance when sustainable finance impacts brown firms," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    4. Xiaoyang Xu & Yufan Xie & Emma Serwaa Obobisa & Huaping Sun, 2023. "Has the establishment of green finance reform and innovation pilot zones improved air quality? Evidence from China," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-14, December.
    5. Xiuli Sun & Cui Zhou & Zhuojiong Gan, 2023. "Green Finance Policy and ESG Performance: Evidence from Chinese Manufacturing Firms," Sustainability, MDPI, vol. 15(8), pages 1-27, April.
    6. Libin Feng & Zhengcheng Sun, 2023. "The Impact of Green Finance Pilot Policy on Carbon Intensity in Chinese Cities—Based on the Synthetic Control Method," Sustainability, MDPI, vol. 15(15), pages 1-21, July.
    7. Li, Yanxi & Yu, Conghui & Shi, Jinyan & Liu, Yuanyuan, 2023. "How does green bond issuance affect total factor productivity? Evidence from Chinese listed enterprises," Energy Economics, Elsevier, vol. 123(C).

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    More about this item

    Keywords

    Green finance; Corporate investment; Investment efficiency; Propensity score matching; Difference-in-difference model;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • N72 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - U.S.; Canada: 1913-

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