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

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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.

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Fig. 1

Source: State Grid Corporation of China, White Paper 2018 for the Promotion of New Energy

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Notes

  1. New energy here includes wind, solar, nuclear, biomass, geothermal.

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Acknowledgements

This work is supported by funding from National Natural Science Foundation of China (Nos. 71673026, 71642004, 71521002, 71322306, 71273027), China’s National Key R&D Program (2016YFA0602801), Joint Development Program of Beijing Municipal Commission of Education and the Fundamental Research Funds for the Central Universities. We appreciate the comments and constructive suggestions from the anonymous referees.

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Author notes

  1. Hua Liao

    Present address: Center for Energy and Environmental Policy Research (CEEP), Beijing Institute of Technology (BIT), 5 Zhongguancun South Street, Haidian District, Beijing, 100081, China

Authors and Affiliations

  1. School of Management and Economics, Beijing Institute of Technology, Beijing, 100081, China

    Zhishuang Zhu & Hua Liao

  2. Center for Energy and Environmental Policy Research (CEEP), Beijing Institute of Technology (BIT), 5 Zhongguancun South Street, Haidian District, Beijing, 100081, China

    Zhishuang Zhu

  3. Sustainable Development Research Institute for Economy and Society of Beijing, Beijing, 100081, China

    Zhishuang Zhu & Hua Liao

  4. School of Economics, Shanxi University of Finance and Economics, Taiyuan, 030006, China

    Zhishuang Zhu

  5. Beijing Key Laboratory of Energy Economics and Environmental Management, Beijing, 100081, China

    Zhishuang Zhu & Hua Liao

  6. Collaborative Innovation Center of Electric Vehicles in Beijing, Beijing, 100081, China

    Hua Liao

Authors
  1. Zhishuang Zhu
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  2. Hua Liao
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Correspondence to Hua Liao.

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Zhu, Z., Liao, H. Do subsidies improve the financial performance of renewable energy companies? Evidence from China. Nat Hazards 95, 241–256 (2019). https://doi.org/10.1007/s11069-018-3423-8

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  • DOI: https://doi.org/10.1007/s11069-018-3423-8

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