Political connections, government subsidies and firm financial performance: Evidence from renewable energy manufacturing in China

• Published in: Renewable energy 2014-03, Vol.63, p.330-336
• Main Authors: Zhang, Huiming, Li, Lianshui, Zhou, Dequn, Zhou, Peng
• Format: Article
• Language: English
• Subjects: Applied sciences; Energy; Equipment costs; Exact sciences and technology; Firm financial performance; Governments; Joints; Mathematical models; Natural energy; Panel data model; Political connection; Renewable energy; Renewable energy manufacturing; Solar energy; Subsidies (financial); Subsidy; Wind energy
• ISSN: 0960-1481; 1879-0682
• DOI: 10.1016/j.renene.2013.09.029

The relationship among political connections, government subsidies and firm financial performance of wind and solar manufacturing companies is analyzed based on panel data model. The results illustrate that government subsidies, in long and short-terms, have significant positive effects on the financial performance of wind energy manufacturing companies; however, a government background of firm executives weakens subsidy effects. In contrast, both key variables, government subsidies and an interaction term of subsidies & political connections, have insignificant effects on the financial performance of solar energy manufacturing companies. Following from the empirical analysis, this paper proposes the suggestions: (1) Reform subsidy policies of wind manufacturing companies, and increase indirect subsidies for key wind energy equipments. (2) Strengthen a strict supervision on wind energy manufacturing companies with political background. (3) Adopt effective measures to reduce individual decision-making in listed wind energy manufacturing companies, and promote collective decisions to reduce the institutional possibilities of rent-seeking. (4) Make clear rules for the use of government subsidies in solar energy manufacturing companies. •Subsidy effect of politically linked renewable energy manufacturing firms is analyzed.•Subsidies notably improve financial performance of wind energy manufacturing firms.•A government background of firm executives weakens subsidy effect.•Key explanatory variables do not work efficiently in solar energy manufacturing firms.•China's subsidy policies for renewable energy manufacturing firms need modifications.