The Effects of Government Environmental Subsidies and Corporate Environmental Investments on Carbon Emissions of Chinese Firms

Abstract

This study investigates the effects of environmental investments and environmental subsidies on carbon emissions by Chinese listed firms on Shanghai Stock and Shenzhen Stock Exchanges from 2008 to 2018. Year-firm data from the RESSET database and financial data from CSMAR database including accounting, financial market, and Chinese government subsidization were utilized. To reflect the tangled relationships between carbon emission, environmental subsidies, and environmental investments, we applied simultaneous equation models (SEMs) and finite lag fixed effects models and report following unique empirical results. First, the government's environmental subsidies were found to have correlate with increasing carbon emissions significantly in the short- and long-term. Second, environmental investments by Chinese firms significantly correlated with short- and long-term carbon emission increases. Third, four other factors―exports, largest shareholding, government shareholding, and firm size―all have a significant effect on carbon emissions. Whether a firm has foreign shareholding is not statistically significant in all analyses. The results imply that most Chinese firms, if not all, have increased their carbon emissions despite receiving governmental environmental subsidies. [Key Words] Carbon Emission, China, Environmental Investment, Environmental Subsidy, Limited Lag Fixed Effects Panel Model, Simultaneous Equation Model, Firm Level Data