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Do subsidies improve the financial performance of renewable energy companies? Evidence from China

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  • Zhishuang Zhu

    (Beijing Institute of Technology
    Beijing Institute of Technology (BIT)
    Sustainable Development Research Institute for Economy and Society of Beijing
    Shanxi University of Finance and Economics)

  • Hua Liao

    (Beijing Institute of Technology
    Beijing Institute of Technology (BIT)
    Sustainable Development Research Institute for Economy and Society of Beijing
    Beijing Key Laboratory of Energy Economics and Environmental Management)

Abstract

The promotion of renewable energy cannot be separated from the support provided by government subsidies. However, the effect of government subsidies is controversial. Taking China’s listed renewable energy companies as examples, this paper analyzes the impact of government subsidies on the financial performance of these companies. The results show that government subsidies do not promote improvements in corporate financial performance, and renewable energy companies are less profitable than other companies. The negative effect of government subsidies on corporate financial performance can be explained mostly by the rent-seeking behavior of firms. The occurrence of subsidy-induced overcapacity and adverse selection and moral hazard created by asymmetric information also weaken the incentive effect of government subsidies to some extent.

Suggested Citation

  • Zhishuang Zhu & Hua Liao, 2019. "Do subsidies improve the financial performance of renewable energy companies? Evidence from China," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 95(1), pages 241-256, January.
    • Handle: RePEc:spr:nathaz:v:95:y:2019:i:1:d:10.1007_s11069-018-3423-8
    DOI: 10.1007/s11069-018-3423-8
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