Fiscal policy benefits and green recovery of firms: an experimental exploration of Chinese listed firms in post-Covid-19

Zhang, Dongyang

In the wake of the COVID-19 pandemic, fiscal policy is an important tool to facilitate green recovery of the economy. This paper uses the low-energy-intensive incentive support policy implemented by the Chinese government as a trial and explores the impact of fiscal policy on the green recovery of firms. Using Chinese listed-firm data from 2019Q1 to 2021Q1, we use the difference-in-differences method to estimate policy effects, leading to several findings. First, our fundamental results show that the government's low-energy-intensive support policy can significantly improve low-energy-intensive firm performance more than that of high-energy-consuming firms, with respect to return on assets, return on equity and Tobin’s Q. Second, regarding the mechanisms involved, our estimation results indicate that the low-energy-intensive support policy works by alleviating financial constraints to improve firm performance. Third, our empirical findings indicate that low-energy-intensive support policy can increase current ratio, liquidity and cash flow, resulting in improved firm financial resources. Finally, the fiscal support policy reduces management and financial costs, thus improving firm performance. Our findings recommend adoption of well-designed fiscal policies in regions where green economic recovery is needed.