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Climate policy uncertainty and corporate real investment: Evidence from China

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  • Guo, Biao
  • Jiang, Chuyu
  • Qin, Mengyao
  • Yuan, Guoqi

Abstract

In the face of escalating climate change, governments worldwide have launched climate policies, often with uncertain timing, intensity, and content. Against this backdrop, this study examines the influence of climate policy uncertainty (CPU) on firms' real investment decisions by integrating a city-level CPU index with panel data on Chinese A-share listed companies spanning 2007 to 2023. The empirical evidence indicates that elevated CPU significantly curtails real investment, a result that is robust to multiple tests. Mechanism analysis indicates that CPU restricts investment by tightening financial constraints and weakening cash flows. The negative effects tend to be more pronounced for firms in less developed regions, private firms, firms in less competitive markets, and those in labor-intensive industries, while ESG-active firms exhibit greater resilience. We also find that supply chain adjustments help buffer this adverse effect by securing more upstream trade credit, limiting downstream liquidity transfers, reducing dependence on major customers and enhancing cooperation with suppliers. These findings highlight the critical role of transparent climate policy frameworks in supporting sustainable investment and long-term economic development.

Suggested Citation

  • Guo, Biao & Jiang, Chuyu & Qin, Mengyao & Yuan, Guoqi, 2026. "Climate policy uncertainty and corporate real investment: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:pacfin:v:99:y:2026:i:c:s0927538x26002088
    DOI: 10.1016/j.pacfin.2026.103262
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