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Exuberance in China's renewable energy investment: Rationality, capital structure and implications with firm level evidence

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  • Zhang, Dayong
  • Cao, Hong
  • Zou, Peijiang

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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  • Zhang, Dayong & Cao, Hong & Zou, Peijiang, 2016. "Exuberance in China's renewable energy investment: Rationality, capital structure and implications with firm level evidence," Energy Policy, Elsevier, vol. 95(C), pages 468-478.
    • Handle: RePEc:eee:enepol:v:95:y:2016:i:c:p:468-478
    DOI: 10.1016/j.enpol.2015.12.005
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    More about this item

    Keywords

    Renewable energy; Over-investment; Capital structure;
    All these keywords.

    JEL classification:

    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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