Exuberance in China's renewable energy investment: Rationality,capital structure and implications with firm level evidence |
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| Affiliation: | 1. Research Institute of Economics and Management, Southwestern University of Finance and Economics, 555 Liutai Avenue, Chengdu, China;2. CEEP, Beijing Institute of Technology, China;3. School of Management and Economics, Beijing Institute of Technology, China;1. College of Economics and Management, Nanjing University of Aeronautics and Astronautics, 29 Yudao Street, Nanjing, China;2. Research Centre for Soft Energy Science, Nanjing University of Aeronautics and Astronautics, 29 Yudao Street, Nanjing, China;3. School of Economics and Management, Southeast University, 2 Southeast University Road, Nanjing, China;1. Institute of Environmental Sciences, CML, Leiden University, Einsteinweg 2, 2333 CC Leiden, The Netherlands;2. School of Management and Economics, Tianjin University, Weijin 92, 300072 Tianjin, People’s Republic of China;3. Leiden University College The Hague, Leiden University, Anna van Buerenplein 301, 2595 DG The Hague, The Netherlands;4. Netherlands Organization for Applied Scientific Research TNO, Anna van Buerenplein 1, 2595 DA The Hague, Netherlands |
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| Abstract: | The new century has witnessed phenomenal worldwide growth in renewable energy investments. China has been especially remarkable, surpassing both the US and the EU in 2013. Some recent facts, however, have raised the question of whether exuberant investment in China’s renewable energy sector is rational. This paper aims to contribute to the literature and to the debate in two ways. First, it tests the over-investment hypothesis based on the main stream finance methodology; second, it analyzes the role of capital structure in the performance of China's renewable energy firms. Empirical results show that overinvestment in the renewable energy sector exists. The problem is more significant in the biomass and wind sector. Capital structure is found to be more important to downstream firms, indicating that policy makers may provide support that enables these firms to finance their investments through corporate bonds, commercial credit, or long-terms debts. |
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| Keywords: | Renewable energy Over-investment Capital structure |
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