Research On The Effects Of Country Risks And Government Subsidies On The Financial Performance Of Chinese Renewable Energy Firms

Facing the increasingly serious ecological crisis and energy shortage,most countries are committed to finding new development models in order to reduce carbon dioxide emissions without affecting economic growth.The development of renewable energy is considered to be one of the most effective measures.China regards the renewable energy industry as a strategic emerging industry,and has issued a series of subsidy policies to vigorously promote its development.The rapid development of the renewable energy industry is conducive to ensuring China’s energy security,improving the energy structure,achieving emission reduction targets,and promoting the sustainability of development.In this context,this study mainly focuses on the factors affecting the financial performance of renewable energy firms,which lays a solid micro research foundation for promoting the development of the renewable energy industry.The production,operation and development of renewable energy firms are inseparable from their external environment.Especially at present,China is undergoing a series of economic,financial and political transformation,which makes renewable energy firms face complex external environmental risks(i.e.country risks).Studying how country risks affect the financial performance of renewable energy firms is of great significance for firms to cope with environmental risk and achieve long-term development.At the same time,renewable energy projects are generally high-risk and difficult to finance.In order to support the growth of renewable energy firms,the Chinese government has implemented a variety of subsidy policies.However,whether the government subsidies can achieve the desired purpose has aroused widespread concern.In addition,some studies have found that the effect of subsidies will also be affected by environmental risk,so when renewable energy firms are in a changing external environment,how government subsidies affect the financial performance of firms is also worth further exploring.Therefore,this paper aims to explore the effects of country risks on the financial performance of Chinese renewable energy firms,and the effects of government subsidies on the financial performance of firms under different country risk environments.This discussion is of great significance for promoting the development of renewable energy firms.This paper uses the unbalanced panel data set of 198 listed renewable energy firms from 2001 to 2018,as well as the multi-dimensional country risk index from International Country Risk Guide(ICRG),including economic risk index,political risk index,financial risk index and composite risk index,to measure country risks.First,by adopting a two-step differenced generalized method of moments(GMM)model,this paper analyzes the effects of different types of country risks on the financial performance of Chinese renewable energy firms,and the moderating effects of subsidies on the relationship between country risks and the performance of renewable energy firms.Secondly,given that renewable energy firms with different performance levels have different firm characteristics and business strategies,and their ability to cope with risks and the efficiency of using subsidies are also different,this paper further adopts a quantile regression model to analyze the effects of country risks and government subsidies on renewable energy firms with different performance levels,and the moderating effect of subsidies on the relationship between country risks and renewable energy firms with different performance levels.Finally,some studies show that financial development respectively interacts with country risks and government subsidies to affect firm performance,and the level of financial development is another important factor for renewable energy firms to obtain funds from outside in addition to subsidies.Therefore,this paper constructs three dimensions of financial development indicators(including banking development,stock market development and composite financial development indicators)to measure financial development through the Principal Component Analysis method,and further adopts a dynamic panel threshold model to analyze under different levels of financial development,the nonlinear effects of the interaction of country risks and government subsidies on the financial performance of renewable energy firms.In addition,based on the above problems,this paper also analyzes the heterogeneity of renewable energy firms with different property rights.The empirical results of this paper show that:(1)Economic and financial risk indices have a positive effect on the performance of renewable energy firms,while political and composite risk indices have a negative effect on the performance of renewable energy firms.Government subsidies have a negative moderating effect on the relationship between country risks and the performance of renewable energy firms.(2)Different types of country risks have different effects on the performance of renewable energy firms throughout the distribution.Government subsidies positively affect the performance of lower-performing renewable energy firms and negatively affect the performance of higher-performing renewable energy firms.Moreover,they have a positive moderating effect on the relationship between economic risk and renewable energy firm performance throughout the distribution.Government subsidies have a positive moderating effect on the relationship between financial risk and performance of all renewable energy firms except for those with the best and worst performance.Government subsidies have a negative moderating effect on the relationship between political and composite risks and renewable energy firm performance throughout the distribution.(3)The moderating effect of government subsidies on the country risk–firm performance nexus differs according to the level of banking sector development,stock market development,and composite financial development.A high level of composite financial development strengthens the positive moderating effects of government subsidies on the composite risk–performance and political risk–performance nexuses and weakens the negative moderating effects of government subsidies on the economic risk–performance and financial risk–performance nexuses.(4)The effects of country risks,government subsidies and financial development on the financial performance of renewable energy firms change with the ownership attributes.Specifically,country risks and government subsidies have different effects on the financial performance of state and private-owned renewable energy firms,and also have different effects on state-and private-owned renewable energy firms with different performance levels,and financial development has different effects on the financial performance of state-and private-owned renewable energy firms through the interaction channel of subsidies and country risks.This paper contributes to the existing literature as follows.(1)This paper constructs a research framework on the effects of country risks,government subsidies and financial development on the financial performance of renewable energy firms,and can make a useful supplement to the theoretical and empirical analysis framework of the relationship between country risk factors,government subsidies,financial development and the financial performance of renewable energy firms from a micro perspective.(2)By using more comprehensive indicators to measure country risks,this paper is conducive to a deeper understanding of the effects of different types of country risks on the financial performance of renewable energy firms,and understanding of the effects of subsidies on the financial performance of renewable energy firms from a new risk perspective,which could provide a reference basis for firms to better deal with external environmental risks and for the government to formulate more reasonable subsidy policies in complex environments.(3)This paper is conducive to a deeper understanding of the effects of different types of country risks and subsidies on the financial performance of renewable energy firms with different performance levels,and understanding of the different moderating effects of subsidies on the relationship between country risks and the financial performance of renewable energy firms with different performance levels,which could enrich the relevant literature.(4)The banking sector development indicator,stock market development indicator and composite financial development indicator constructed in this paper can better measure financial development from different dimensions.This paper discusses the interaction between country risks and government subsidies on the financial performance of renewable energy firms under different levels of financial development,which is conducive to in-depth understanding of the complex effects of these macro variables on renewable energy firms and enriches relevant literature.