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

Zhishuang Zhu and Hua Liao ()
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Zhishuang Zhu: Beijing Institute of Technology
Hua Liao: Beijing Institute of Technology

Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, 2019, vol. 95, issue 1, 241-256

Abstract: 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.

Keywords: Renewable energy; Government subsidies; Rent-seeking behavior; Overcapacity; Asymmetric information (search for similar items in EconPapers)
Date: 2019
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