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The heterogeneous treatment effect of low-carbon city pilot policy on stock return: A generalized random forests approach

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  • Wang, Man
  • Yang, Qiuping

Abstract

To achieve sustainable development, China has launched the low-carbon city pilot (LCCP) program in 2010. However, the impact of this policy on firm performance has not been well investigated. By the cutting-edge generalized random forests (GRF) method, this paper takes LCCP as a quasi-natural experiment and analyzes its heterogeneous treatment effect on the stock return of Chinese firms. It is found that LCCP has a significantly negative effect on stock return and the market reacts in advance. The effect is heterogeneous and nonlinearly decided by firm features. Specifically, firms with lower financial leverage, greater profitability and longer listing years suffer more decrease in stock return. Best linear predictor test suggests that the GRF method provides satisfying estimate of the true heterogeneous treatment effect.

Suggested Citation

  • Wang, Man & Yang, Qiuping, 2022. "The heterogeneous treatment effect of low-carbon city pilot policy on stock return: A generalized random forests approach," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s154461232200112x
    DOI: 10.1016/j.frl.2022.102808
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    References listed on IDEAS

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    1. Victor Chernozhukov & Denis Chetverikov & Mert Demirer & Esther Duflo & Christian Hansen & Whitney Newey & James Robins, 2018. "Double/debiased machine learning for treatment and structural parameters," Econometrics Journal, Royal Economic Society, vol. 21(1), pages 1-68, February.
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    Citations

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    Cited by:

    1. Gao, Yihong & Gao, Jiayan, 2023. "Low-carbon transformation and corporate cash holdings," Finance Research Letters, Elsevier, vol. 54(C).
    2. Cong Wei & Jiayang Kong, 2022. "The Effect of Innovation City Construction on Carbon Emissions in China," Land, MDPI, vol. 11(7), pages 1-14, July.
    3. Xu, Xin & Huang, Shupei & Lucey, Brian M. & An, Haizhong, 2023. "The impacts of climate policy uncertainty on stock markets: Comparison between China and the US," International Review of Financial Analysis, Elsevier, vol. 88(C).
    4. Liu, Xiangsheng & Lv, Lingli, 2023. "The effect of China's low carbon city pilot policy on corporate financialization," Finance Research Letters, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Generalized random forests; Heterogeneous treatment effects; Low-carbon city pilot; Stock return; Quasi-natural experiment;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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