Exuberance in China's Renewable Energy Investment: Rationality, Capital Structure, and Implications with Firm Level Evidence

The 21st century has already 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 China’s exuberant investment in renewable energy sector is rational. This study aims to contribute to the literature and to the debate in two ways. First, it tests the over-investment hypothesis based on the mainstream finance methodology (the Q model); second, it analyses the role of capital structure in the performance of China’s renewable energy firms. Empirical results could then provide recommendations for policymakers on how to prompt sustainable growth in the renewable energy sector. Although based on China, this study’s main findings could also contribute to policy design for emerging economies.