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Political connections, government subsidies and firm financial performance: Evidence from renewable energy manufacturing in China

Huiming Zhang, Lianshui Li, Dequn Zhou and Peng Zhou ()

Renewable Energy, 2014, vol. 63, issue C, 330-336

Abstract: The relationship among political connections, government subsidies and firm financial performance of wind and solar manufacturing companies is analyzed based on panel data model. The results illustrate that government subsidies, in long and short-terms, have significant positive effects on the financial performance of wind energy manufacturing companies; however, a government background of firm executives weakens subsidy effects. In contrast, both key variables, government subsidies and an interaction term of subsidies & political connections, have insignificant effects on the financial performance of solar energy manufacturing companies. Following from the empirical analysis, this paper proposes the suggestions: (1) Reform subsidy policies of wind manufacturing companies, and increase indirect subsidies for key wind energy equipments. (2) Strengthen a strict supervision on wind energy manufacturing companies with political background. (3) Adopt effective measures to reduce individual decision-making in listed wind energy manufacturing companies, and promote collective decisions to reduce the institutional possibilities of rent-seeking. (4) Make clear rules for the use of government subsidies in solar energy manufacturing companies.

Keywords: Political connection; Subsidy; Renewable energy manufacturing; Firm financial performance; Panel data model (search for similar items in EconPapers)
Date: 2014
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