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

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.