Energy Policy 159 (2021) 112610

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Energy Policy
journal homepage: www.elsevier.com/locate/enpol

Government subsidies and firm-level renewable energy investment: New

evidence from partially linear functional-coefficient models
Rui Bai a, Boqiang Lin a, *, Xiying Liu b
a
School of Management, China Institute for Studies in Energy Policy, Collaborative Innovation Center for Energy Economics and Energy Policy, Xiamen University, Fujian
361005, China
b
Swissgrid Ltd 5000 Aarau, Switzerland

A R T I C L E I N F O A B S T R A C T

Keywords: Understanding the heterogeneity and influencing factors of renewable energy investment between enterprises
Government subsidies can help to evaluate existing policies and provide guidance for future subsidy policies. This paper investigates
Renewable energy investment how the relationship between government subsidies and renewable energy investment depends on enterprise size
Partially linear functional-coefficient model
and relaxes the linear relationship in the traditional empirical model. Based on firm-level panel data from China,
only when the enterprise size exceeds a certain threshold value can it have a significant effect. The effect of
government subsidies on renewable energy investment is on the rise. However, its speed tends to decrease with
the growth of enterprise size. Besides, ownership concentration and enterprise growth significantly promote
investment in renewable energy. The empirical results show that the effect of government subsidies has a sig­
nificant enhancement in 2016, which may be due to high frequency and high government subsidies in the early
stage. These findings are robustly verified. Finally, some specific policy suggestions are put forward.

1. Introduction
With the global energy transformation and rising population, China
has made vigorous efforts to achieve energy conservation and emission
reduction targets by developing renewable energy (Chen et al., 2020).
China is a country with strong vitality for green investment (Eyraud
et al., 2013). In 2019, renewable energy accounted for 27.9 percent of
total power generation, up 1.2 percentage points year on year.1 The data
from research company BloombergNEF2 shows that China again
retained its title as the largest investor in renewable energy in 2019,
with a total of $83.4 billion.
The development of the industry is ultimately realized at the enter­
prise level. While there is some consensus that renewable energy in­
vestment is highly uncertain and subject to external financing
constraints, government subsidies help foster and support the renewable
energy industry (Masini et al., 2013). Besides, because of the high cost
and positive externalities of renewable energy over fossil energy, gov­
ernment subsidies play a critical role. Promoting the development of
renewable energy enterprises will help China to promote energy trans­
formation and other climate issues. In China, a government subsidy is a
powerful tool for fostering and nurturing new industries. For example,
the Chinese government has provided substantial financial support and
environmental subsidies for related renewable energy industries, such as
photovoltaic and wind power (Cao et al., 2020). The enthusiasm for
renewable energy investment has been fueled by government subsidies
(Chang et al., 2020).
It is necessary to further study the investment characteristics of en­
terprises. Barney (1991) emphasized the heterogeneity of enterprises,
and Oliver (1997) further pointed out that enterprise analysis is very
important because enterprises have different strategic responses to the
influence of institutions. For example, Plank and Doblinger (2018)
emphasized that Germany’s renewable energy field which requires a
more granular firm-level approach of analysis.
Further, the transfer payment object of government subsidies is mi­
croeconomic entities. Although it is valuable to consider the overall
impact of government subsidies on renewable energy investment in
China from a macro perspective, the above research fails to address the
impact of government subsidies on the behavior of firms (Yang et al.,
2019). Renewable energy investment is implemented by enterprises,
and the effect of government subsidies needs to be studied through the

* Corresponding author.
E-mail addresses: bqlin@xmu.edu.cn, bqlin2004@vip.sina.com (B. Lin).
1
National Energy Administration (NEA) (China), 2020, http://www.gov.cn/shuju/2020-03/06/content_5488145.htm.
2
BloombergNEF, 2020, https://about.bnef.com/new-energy-outlook/.

https://doi.org/10.1016/j.enpol.2021.112610
Received 5 November 2020; Received in revised form 8 September 2021; Accepted 19 September 2021
Available online 29 September 2021
0301-4215/© 2021 Elsevier Ltd. All rights reserved.
R. Bai et al.
behavior of enterprises (Chang et al., 2019).
More importantly, moderating effect of enterprise-scale is rarely
considered. Besides, even if some literature considers the issue of
renewable energy investment and subsidies, samples are often divided
into sub-samples to consider the impact of enterprise-scale in the char­
acterization of the moderating effect (Yang et al., 2020; Cao et al.,
2020). As the size of the subsamples is different, this inevitably leads to
model incommensurability.
However, under different sizes, there are many problems worth
discussing. The moderating effect of firm size deserves attention. From
the perspective of contingency management research, firm size is an
important factor affecting the survival and performance of enterprises.
Firm size is identified as a crucial contingency factor and has long been
applied in relevant researches. Many scholars have used firm size as a
moderating variable. Some studies have found that small firms are often
more susceptible to the macroeconomic environment than large ones (M
and Gilchrist, 1994). The influence of government subsidies on enter­
prise performance varies with the size of enterprises (Luo et al., 2020),
and the influence modes of the characteristics of enterprise management
on the performance of enterprises of different sizes are different (Peng
et al., 2000). Small and large firms can differ in their motives for pur­
suing investment and in the types of their investment efforts. The
innovation problem of different enterprise scales is studied by Akcigit
and Kerr (2018). The financing constraints and investment horizons of
large companies are not the same as small businesses. On the one hand,
large companies that receive government subsidies have more incentive
to engage in research and development than small ones. On the other
hand, large companies are also less financially constrained, suggesting
that the benefits of government subsidies will wane. External financing
constraints are important considerations (Chang et al., 2019).
After reviewing the relevant research literature, some questions
worth discussing have been raised. Is the impact of government sub­
sidies positive or negative and what are the factors affecting it? Will the
effect of government subsidies on different-sized firms producing het­
erogeneous investments? If so, is the relationship between them linear or
will their relationship be affected by moderators? To explore these
questions further, this paper is devoted to answering the above ques­
tions, which will be helpful for China to cultivate the renewable energy
market.
The main contribution of the paper is summarized. Firstly, this paper
contributes to the empirical research of government subsidies and
renewable energy investment from a firm level, rather than discussing
the macro situation. Therefore, it is helpful to give more practical policy
implications. Secondly, we also examine whether renewable energy
technology investment depends on the level of enterprise scale. In
existing papers, the method of sample division is directly used to discuss
the influence of enterprise-scale, which may lead to errors in some
models and incomparability in coefficients. In this paper, the assump­
tion is relaxed and the full sample data is used to focus on the moder­
ating effect brought by enterprise size. Thirdly, the kernel density
function of the estimated coefficient shows that the government subsidy
effect increases year by year. From linear to moderating effect relations,
the hierarchical model setting is helpful to further explore the influence
of enterprise-level characteristics on China’s renewable energy
investment.
This paper is divided into six parts. The literature and assumptions
are discussed in the next section. In the third and fourth parts, the
research methods and data are described respectively. The fifth part
gives the empirical analysis and results. The last part gives the relevant
conclusions and policy enlightenment.
2. Literature review
Many pieces of literature have discussed the evaluation of renewable
energy investment projects, which take into account economic, tech­
nological, environmental, social, and political factors. Zeng et al. (2017)
2
Energy Policy 159 (2021) 112610
point out that the existing problems of renewable energy construction in
BRICS countries can be solved by expanding the capital market, finan­
cial leasing services, construction-operation-transfer, and
construction-own-operation projects. Ozorhon et al. (2018) highlight
that laws and regulations are decisive processes in renewable energy
investments. Lakshmi et al. (2019) explore how community renewable
energy enterprises can monitor and improve their operations. Hashe­
mizadeh et al. (2020) capture the investment risks of renewable energy
in the “One Belt and One Road” countries. Kul et al. (2020) propose a
three-stage decision framework based on a multi-standard decision-­
making method to evaluate renewable energy investment.
A lot of literature discussed related macro factors that may affect
renewable energy investment. Some articles discuss the influence of
green finance development (He et al., 2019), economic policy uncer­
tainty (Liu et al., 2020), regulatory instruments (Kim, 2020), and oil
price volatility factors (Cao et al., 2020) on investment. He et al. (2019)
empirically examine that the development of green finance in China
negatively affects the loan issuance of banks and inhibited the
improvement of investment efficiency of renewable energy. Liu et al.
(2020) further analyze that economic policy uncertainty inhibits the
investment of traditional energy enterprises rather than renewable en­
ergy enterprises. Kim (2020) finds that regulatory tools such as
compulsory plans were effective in promoting private renewable energy
investment. Cao et al. (2020) show that compared with large enterprises,
oil price fluctuations strongly inhibit the renewable energy investment
of small enterprises. Zhou et al. (2019) argue that thermoelectric com­
panies tend to adopt scale strategies to deal with the potential threats of
leveraged expansion by renewable power companies.
There is also a collection of renewable energy financing channels.
However, the “free rider” effect of the innovative process is hard to avoid
(Hall and Reenen, 2000). Companies are always worried about the risk
of investment which may be higher than the benefits of investment (Hud
and Hussinger, 2015; Bournakis et al., 2018). Subsidies, bank credit,
IPO, and VC are the four most common types of external financing for
renewable energy enterprises (Mazzucato et al., 2018; Wu et al., 2020).
Wu et al. (2020) find that government-funded renewable energy enter­
prises are more likely to receive VC funding if they receive government
R&D subsidies. Deleidi et al. (2020) indicate that the increase in public
direct investment has greatly promoted private direct investment.
Previous studies of the effect of government subsidies mainly focus
on the macro-perspective. Bernini et al. (2011) find that government
subsidies have significantly boosted business investment. Acemoglu
et al. (2016) conclude research subsidy is an integral part of the optimal
path of the clean energy transition. Zhang and Zhou (2016) highlight the
irreversible nature of renewable energy investments, above the invest­
ment costs and investment climate uncertainties of fossil fuel-fired
power projects. Zhang et al. (2014) argue that subsidies effectively
improve financial performance in energy manufacturing enterprises. Nie
et al. (2016) argue that government subsidies promote renewable en­
ergy investment. Therefore, appropriate government subsidies can, to a
certain extent, reduce risks and send a positive signal. In other words,
government subsidies have an incentive effect on investment in
renewable energy.
However, due to information asymmetry, rent-seeking behaviors
may appear at the present stage (Rebolledo and Sandonís, 2012). Gov­
ernment subsidies may crowd out the original investment of enterprises
(Atzeni and Carboni, 2006). Government support may lead to possible
over-investment in the industry, making the investment inefficient
(Zhang and Cao, 2016). When large amounts of subsidies flow to a
particular industry, the market is likely to overheat and systemic risks in
the technology market rise. Yu et al. (2016) point out that some
crowding-out effect of government subsidies is eventually all too likely
on enterprises’ research and development behavior. Besides, some en­
terprises will send false signals, leading to the adverse choice of gov­
ernment subsidies (Yang et al., 2020), which will crowd out renewable
energy investment. Thus, government subsidies can also have negative
R. Bai et al.
effects on promoting enterprise investment under certain conditions.
Therefore, the subsidy optimization mechanism has also been much
discussed, such as the regulation of subsidies (Altenburg and Engelme­
ier, 2013) and the gradual establishment of carbon emission trading
markets (Zhang et al., 2017).
In this regard, there is no denying that government subsidy is an
important part of the front end. There is still a lack of renewable energy
investment and government subsidy system research.
On one hand, the details of the research can be further improved,
especially the research topic of enterprise size. To promote investment in
renewable energy, should we subsidize big businesses or small busi­
nesses? When it comes to renewable energy investment, investment
motivations vary from person to person (Bergek et al., 2013). Many
articles discuss the effect of scale. Small and large firms can differ in
their motives for pursuing investment and in the types of their invest­
ment efforts (Akcigit and Kerr, 2018). In this regard, even if some works
of literature consider the issue of renewable energy investment and
subsidies, samples are often divided into sub-samples to consider the
impact of scale in the description of the nonlinear relationship (Yang
et al., 2019, 2020; Cao et al., 2020). As the number of subsamples is
different, it inevitably leads to errors in model setting and model
incommensurability. This paper uses the full sample data approach.
On the other hand, micro enterprise-level research needs to be sup­
plemented. Firm-specific variables are also determinants that affect in­
vestment behavior. Some scholars have noted the contribution of
enterprise characteristics. Combined with the classical agency theory,
ownership concentration reflects the restraining ability of shareholders
to supervise management (Jensen and Meckling, 1976; Shleifer and
Vishny, 1986). On the positive side, it helps to strengthen supervision,
restrain rent-seeking behavior, improve corporate governance level, and
make a better capital investment (Yu and Wang, 2020). The high con­
centration of equity encourages managers to keep firmly in mind the
long-term benefits of enterprises, thus influencing the investment stra­
tegies of enterprises (Lin and Luan, 2020). However, it may also lead to
the collusion effect of multiple major shareholders, damage the interests
of minority shareholders and increase agency costs (La Porta et al.,
1999; Young et al., 2008; Bebchuk and Weisbach, 2010). Therefore, the
impact of this corporate characteristic on investment is considered.
What’s more, the longer the establishment, the more mature the busi­
ness growth model is, which is conducive to investment (Liu et al.,
2019). The duration of the enterprise is chosen to measure the degree of
the investment strategy of the enterprise.
In addition to project risks, investment attitudes and behaviors of
renewable energy investors are largely influenced by returns (Dinica,
2006). The profitability of renewable energy companies is very impor­
tant. Studies have shown that private investors are more inclined to
invest in companies with high profits (Popp, 2010). Enterprise profit­
ability is an important feature, and companies with stronger profitability
are also more capable of investing and creating more wealth under the
same conditions (Zeng et al., 2018).
Leverage is also an important factor affecting corporate investment.
Using leverage can provide companies with more financial resources to
invest. The asset-liability ratio can measure the ability of an enterprise to
carry out business activities. In the absence of a debt crisis, go as high as
possible. At this point, a high asset-liability ratio means an increase in
enterprise investment (Cao et al., 2020). A moderate asset-liability ratio
can enable enterprises to use debt leverage to improve shareholders’
returns when the interest rate is lower than the investment rate of re­
turn. However, it is worth noting that a high asset-liability ratio is not
always a good thing. Because the creditors prefer a low asset-liability
ratio. Furthermore, a company with higher leverage needs to pay
more interest, and its investment capacity would be limited. It may also
mean reining in firms’ overinvestment (Jensen, 1986; Chen et al., 2011).
Related research turns to the evaluation of macro factors (Hashe­
mizadeh et al., 2020; Kul et al., 2020; Lakshmi et al., 2019; Zeng et al.,
2017). More attention should be paid to enterprise-level characteristics
3
Energy Policy 159 (2021) 112610
(Liu et al., 2019; Lin and Luan, 2020). Depend on the above literature,
we give a research framework in Fig. 1.
3. Methodology
Refer to Yan et al. (2020), the basic econometric model is presented
in Eq. (1):
′
ln REIit = β1 ln GSit + ϒ Xit + f (t) + αi + εit , i = 1, ⋯, N, t = 1, ⋯, TM,
(1)
where REIit indicates the investment of renewable energy enterprises
(REI) for enterprises i in year t. GSit indicates the government subsidy. Xit
are control variables (including the profitability, financial leverage,
enterprise-scale, enterprise growth and ownership concentration). f(t)
denotes the time effects. αi captures the individual fixed effect. εit rep­
resents the idiosyncratic error.
According to the benchmark model shown in Eq. (1), the influence of
government subsidies is mainly considered and a variety of control
variables are taken into account. On this basis, this paper further con­
siders the heterogeneous effect of government subsidies regarding the
enterprise scale. To take the size into account, this paper presents a
second economic model Eq. (2):
′
ln REIit = β1 ln GSit + β2 [ln GSit × Dit ] + ϒ Xit + f (t) + αi + εit , (2)
where Dit is a dummy variable. If the enterprise size is larger than the
mean, the dummy variable is one. And the other way around is zero.
ln GSit × Dit is the interaction term. The rest of the settings are consistent
with the benchmark model. When the interaction term is added, the
slope changes. It uses different slopes at different times. If the enterprise
size is larger than the mean, the impact of government subsidies is
characterized as β1 + β2 . Otherwise, the impact of government subsidies
is characterized as β1 .
Although the second economic model considers the interaction of
scale, it is possible to bias the estimates by using dummy variables. In the
third economic model, we replace the original dummy variable with an
interaction term of government subsidies and enterprise size:
(3)
′
ln REIit = β1 ln GSit + β3 [ln GSit × ln scaleit ] + ϒ Xit + f (t) + αi + εit ,
where ln scaleit is defined as the logarithm of enterprise size. The third
model implies that the impact of government subsidies is expressed as a
linear function of the logarithm of the scale level, which, in this instance,
is shown as β1 + β3 ln(scaleit ).
There are common potential misspecification problems in the first
three models. A partial linear function coefficient model with a fixed-
effect model (An et al., 2016; Zhang et al., 2020) is flexible enough to
consider the moderating effect of scale and the linear relationship of
dependent variables and other control variables.
′ ′
ln REIit = ln GSit g(ln scaleit ) + Xit ϒ + f (t) + αi + εit , (4)
In Eq. (4), the model considers the linear part and the moderating
effect part separately. ln GSit = (ln GS1,it , ⋯, ln GSl,it ) is a vector of
′
explanatory variables with functional coefficients g(ln scaleit ) =
(g1 (ln scale1,it ), ⋯, gl (ln scalel,it )) .
′
The process of parameter estimation is mainly divided into three
steps.
Firstly, determine the seize method. Select a seize method to
approximate the unknown function to be estimated. This article chooses
to use B-splines. B-splines was presented by Newson (2001). Libois et al.
(2013) and Du et al. (2020a) both applied this seize method in their
papers. We define the sieve basis function Lp and a set of basis functions
hp ( ⋅) = (hp,1 (⋅), hp,2 (⋅)⋯, hp,Lp (⋅)) . At the same time, let the seize func­
′
tion Lp change with the number of enterprises and years. At this point,
Eq. (4) can be rewritten as Eq. (5).
R. Bai et al. Energy Policy 159 (2021) 112610

Fig. 1. The main research framework.

′ ′
ln REIit = Hit Γ + Xit ϒ + f (t) + αi + υit , (5) The third-order B-spline basis functions are used as weights. To define
the third-order B-spline basis functions, relevant definitions are shown
where gp ( ⋅) ≈ hP (⋅) βp , p = 1, 2, ⋯, l, Γ ≡ (β1 , β2 , ⋯, βl ), υit = εit + γit in Eq. (8).
′

andHit ≡ (ln GS1,it h1 (ln scaleit )′ , ⋯, ln GSl,it hl (ln scaleit )′ ) . ( ) ( )

′

x − tj tj+4 − x
The second step is to eliminate the fixed effect. A new model is ob­ hj (x) = hj,2 (x) + hj+1,2 (x), j = − 3, − 2, − 1, 0, 1, 2, …, k (8)
tj+3 − tj tj+4 − tj+1
tained by using the first difference.
where hj,2 (x) is defined as shown in Eq. (9).
(6)
′ ′
Δ ln REIit = ΔHit Γ + ΔXit ϒ + Δυit ,
( ) ( )
x − tj tj+3 − x
where Δ represents the first difference operator. Furthermore, the model hj,2 (x) = hj,1 (x) + hj+1,1 (x), j = − 2, − 1, 0, 1, 2, …, k (9)
tj+2 − tj tj+3 − tj+1
considers two scenarios. In cases where explanatory variables are
exogenous, the model uses least-squares estimation. If part of variables where hj,1 (x) is defined as shown in Eq. (10)
in ln GSit and Xit are endogenous, parameters are estimated using a sieve ( ) ( )
two-step least-square method. So that gives us an estimate of Γ.̂
hj,1 (x) =
x − tj ( )
1 tj ≤ x < tj+1 +
tj+2 − x ( )
1 tj+1 ≤ x < tj+2 ,
Finally, the function coefficients g(ln scaleit ) can be estimated based tj+1 − tj tj+2 − tj+1 (10)
on the existing parameter estimates. j = − 1, 0, 1, 2, …, k
( ) ( )′
g p ln scalep,it = hP ln scalep,it ̂
̂ β p , p = 1, 2, ⋯, l (7) where 1( ⋅)is an indicative function.
To compute hj (x), we need to compute hj,2 (x) and hj+1,2 (x). To
It has been shown that non-parametric settings for low-dimensional
variables are feasible (Cai et al., 2019; Zhang and Zhou, 2020; Du et al., compute hj,2 (x), we need to compute hj,1 (x) and hj+1,1 (x). To compute
2020b). In detail, this paper employs the third-order B-splines to hj+1,2 (x), we need to build on the result of hj+1,1 (x) and hj+2,1 (x). It is not
approximate the functional coefficient g(x) (Newson, 2001; Libois et al., difficult to understand that if the degree is zero, these basis functions are
2013; Du et al., 2020a, 2020b). Suppose there are k interior knots, t1 , t2 , all step functions. That is, basis function hj,0 (x) is 1 if x is in the j-th knot
⋯, tk . We add t− 3, t− 2, t− 1, t0, tk+1, tk+2, tk+3, and tk+4 to the interior knots. It span [uj , uj +1 ). The j-th B-spline basis function of degree 0, written as
adds 4 interior knots to the left, spaced by the difference between the hj,0 (x), is defined recursively as follows:
first two original interior knots, and 4 extra interior knots to the right,
spaced by the difference between the last two original interior knots.

4
R. Bai et al. Energy Policy 159 (2021) 112610

{
1, if tj ≤ x < tj+1 Financial leverage (lev). The asset-liability ratio is used as an
hj,0 (x) = (11)
0, otherwise instrumental variable to measure the impact of financial leverage. A
high asset-liability ratio will leave companies with insufficient capital to
Then the functional coefficient g(x) is approximated by a linear
invest.
combination of h− 3 (x), h− 2 (x), ⋯, h− k (x) which is shown in Eq. (12).
See Table 2 for the description of variables.
∑
k Fig. 2 shows the scatter plot of government subsidies and corporate
g(x) ≃ ηj hj (x) (12) renewable energy investment. The data reported here appear to support
j=− 3
the assumption that there is a positive relationship between the two.
Through the layer upon layer of these four models, on one hand, the Fig. 3 shows the scatter plot of government subsidies and enterprise
impact of government subsidies on renewable energy is treated as a non- scale. According to the relationship between the two, it is necessary to
parametric function of enterprise-scale. Besides, we consider the linear assume that there is a correlation between government subsidies and
effect of other possible control variables on renewable energy enterprise size. Previous studies have often made linear assumptions.
investment. Fig. 4 shows government subsidy and renewable energy investment
after considering enterprise size. In three-dimensional space, it is diffi­
cult to describe the three relationships directly. As is pointed out in the
3.1. Data source and variable description introduction to this paper, the moderating effect of enterprise size is
worth further exploring.
This paper selects Chinese renewable energy companies according to Based on the above variable description, relevant descriptive statis­
the relevant concept section and the main business of the company. The tical analysis is given in Table 3. As for the control variables, the
specific steps are as follows: firstly, according to the selection criteria of dispersion degree among individuals with a financial leverage ratio in
sample enterprises by Chang et al. (2020) and Lin and Luan (2020), the sample group is relatively large. It can be seen that some renewable
listed renewable energy enterprises belonging to the concept section of energy enterprises have a very high asset-liability ratio, and the average
renewable energy should be selected. Secondly, considering data ROA is only 5.304%. It is consistent with the characteristics of renew­
availability and important related variables, we exclude ST or *ST en­ able energy enterprises. There are several possible explanations for this
terprises with missing values. Thirdly, through the above screening result. Firstly, the renewable energy industry is an emerging industry
method, the main business of the enterprise is further checked to ensure. with many new entrants into the market. Such enterprises are likely to
Finally, 93 listed renewable energy enterprises are taken as the research obtain a large amount of capital in the initial stage, and their profit­
samples, and the variable data is derived from Wind and the annual ability is weak. Secondly, they are more likely to borrow money for
report data of relevant companies. development, leading to a high proportion of debt financing.
This paper takes 93 renewable energy enterprises listed on China’s A-
share market from 2014 to 2019 as samples. The above sample covers 5. Results and analysis
five major renewable energy industries. For specific enterprise types, we
give relevant information in Table 1. 5.1. Results of the baseline models
Renewable energy investment (REI). It refers to the capital that en­
terprises purchase various production and operation assets (Yang et al., The results of the benchmark model are shown in Table 4. In Column
2019). This paper takes the logarithm value of this variable. (1), only the government subsidy variable is included. The main result is
Government subsidies (GS). In this paper, the subsidy of 93 listed that government subsidies significantly promote investment in renew­
renewable energy enterprises in China is collected to measure the gov­ able energy. In Columns (2)–(6), the enterprise size, equity concentra­
ernment subsidy. The unit is RMB. This paper takes the logarithm value tion, asset-liability ratio, enterprise growth, and ROA variables are
of this variable. included in the estimates successively. In each column in Table 4, the
Enterprise-scale (scale). With the consideration of financing con­ coefficient of lnGS is positive and significant, indicating that overall
straints and risk resistance, the relationship between enterprise-scale government subsidies promote enterprises’ investment in renewable
and enterprise investment is the research focus of this paper. Accord­ energy. In the sixth column, we find that government subsidy, enterprise
ing to Liu et al. (2018), the total number of employees is adopted as the size, ownership concentration, enterprise growth, and profitability all
proxy variable of the enterprise size in the regression model. This paper
takes the logarithm value of this variable. Table 2
The control variables are specified as follows. Table 1 shows variable Variable definitions.
definitions and variable units. Variable Indicator Unit Definition
Ownership concentration (ms). Referring to Choi et al. (2012) and
Dependent variable
Lin et al. (2020), this paper uses the shareholding ratio of the largest
shareholder as the proxy variable of equity concentration. Renewable energy REI yuan Cash paid for the construction of fixed
investment assets, intangible assets and other
Enterprise growth (growth). According to Lee (2010), establishing
long-term investments
time is used as a proxy for business growth variables. Independent
Profitability (profit). This article uses the ratio of net income to the variable
total assets (ROA) as a proxy variable for profitability. Government GS yuan Total amount of government
subsidy subsidies
Enterprise-scale scale person The total number of employees in the
Table 1 enterprise
Subdivided trade structure. Control variable
Industry involved Number of the enterprise Enterprise-cale scale person The total number of employees in the
enterprise
Solar energy 40 Ownership ms % The largest shareholdings of Major
Hydro energy 8 concentration Shareholders
Wind energy 18 Profitability profit % The ratio of net income to the total
Biomass energy 16 assets
Geothermal 11 Enterprise Growth growth % The number of years since the
In total 93 enterprise’s founding
Financial leverage lev % The asset-liability ratio
The variable description is given below.

5
R. Bai et al.
Fig. 2. Scatter plot of lngs and lnrei. Source: Wind database and annual report data.
Fig. 3. Scatter plot of government subsidies and enterprise-scale. Source: Wind
database and annual report data.
have a significant impact on renewables enterprise investment. Only
financial leverage has no significant influence.
Regarding the control variables, enterprise size, equity concentra­
tion, enterprise growth, and ROA variables also significantly affect the
renewable energy investment of the enterprise. However, few studies
have examined the heterogeneous effects at the enterprise scale. The rest
of this article focuses on answering this question.
5.2. Results of models with interactive terms
After considering the interaction effects, the empirical results are
reported in Table 5. Regarding our measures of the model, Column (9) is
the result of the linear portion, which will be discussed further.
Based on the above model settings, the relationship between the
6
Energy Policy 159 (2021) 112610
major variables has not been consistent with the exact results. This
inconsistency may be due to the traditional linear function models. In
contrast, the linear assumption is relaxed in this paper. From the en­
terprise characteristic level, ownership concentration and enterprise
growth significantly promote investment in renewable energy as shown
in Columns (9). Compared with the benchmark model, we find that the
impact of profitability is no longer significant.
5.3. Results of the partially linear functional-coefficient panel data model
Fig. 5 reports the estimated results of the moderating effect part in
Column (9) of Table 5. We explain the results from the following three
aspects.
Firstly, the significance of government subsidies’ impact depends on
the enterprise scale. Specifically, when the enterprise’s size is smaller
than 7.68, the 95% confidence intervals of the estimated functional in­
come distribution contain zero, and the influence of the government’s
investment is not significant. More specifically, when the enterprise size
is greater than 7.68, the estimated results are significant.
The reasons for this result may be explained from the following
perspectives: Firstly, government subsidies are usually targeted at spe­
cific projects, mainly including special support funds. In other words,
enterprises prefer investments within the scope of subsidy programs
(Yang et al., 2019). With poorer funding sources, small and
medium-sized enterprises have more incentive to apply for government
subsidies. As a result, government subsidies are more likely to crowd out
investment in small and medium-sized renewable energy sources.
Moreover, enterprises tend to be profit-driven, and concerns about
renewable energy profitability have persisted since 2009. In the case of
wind companies, wind-abandon problem is becoming increasingly
serious. Enterprises’ expectations of huge future economic returns are a
decisive reason for continuing to invest today. Enterprises’ investment
expectations may have two motives. Some enterprises hope that the
government will introduce policies to solve the consumption problem.
The others expect to increase the scale of investment to achieve
R. Bai et al. Energy Policy 159 (2021) 112610

Fig. 4. Scatter plot of government subsidy and renewable energy investment after considering enterprise size. Source: Wind database and annual report data.

have a greater demand for capital. Compared with large enterprises, the
Table 3
risk resistance of small and medium-sized enterprises is lower than that
Descriptive statistics.
of large enterprises. With the increase of investment scale, small and
Variable Obs Mean Std. Dev. Min Max medium-sized enterprises are less able to solve the problem of
lnrei 558 19.483 1.553 14.11 23.15 under-utilization of renewable energy in the face of consumption. In this
lngs 558 16.68 1.393 9.2 20.89 condition, government subsidies that encourage small businesses to
lnscale 558 7.823 1.062 5.3 11.47
expand and invest are less attractive.
ms 558 56.748 14.96 12.72 90.61
lev 558 49.326 17.625 5.47 95.23
Secondly, according to Fig. 5, the investment effect of government
growth 558 18.263 5.795 5 38 subsidies increases with the size of enterprises. For large enterprises,
roa 558 5.304 6.424 − 36.45 55.48 subsidies have a multiplier effect. However, it does not rise in a straight
Source: Wind database and annual report data. line. It rises more and more slowly and drops slightly after reaching the
peak, that is, the growth rate of the growth effect slows down, showing a
diminishing margin. In this regard, the decline in the growth rate of the
cost-effectiveness (Zhu et al., 2019). Besides, take the long view,
enterprise investment effect may be due to the following reasons. Due to
increased investment in green power generation will help companies
the declining magnitude of the subsidies as a fraction of enterprise value,
resist the rising cost of carbon trading (Yu and Wu, 2020). Due to the
the larger the enterprise scale, the smaller the subsidy amount is relative
lower operational stability and capital adequacy, smaller enterprises

Table 4
Results of the baseline models.
Variables (1) (2) (3) (4) (5) (6)

lnGS .274** .18* .186* .189** .149* .151*

(.118) (.102) (.096) (.094) (.084) (.08)
lnscale .843*** .774*** .829*** .617*** .591***
(.223) (.197) (.201) (.217) (.196)
ms .027** .026** .035*** .028**
(.012) (.011) (.012) (.011)
lev -.006 -.005 -.004
(.008) (.008) (.007)
growth .132*** .14***
(.042) (.042)
roa .023**
(.01)
Constant 13.419*** 10.126*** 8.869*** 8.75*** 8.076*** 8.314***
(2.028) (2.385) (2.031) (1.991) (1.68) (1.568)
f(t) YES YES YES YES YES YES
Observations 558 558 558 558 558 558
R-squared .137 .203 .236 .238 .297 .313

Notes: Standard errors are in parentheses. (***p < .01, **p < .05, *p < .1).

7
R. Bai et al. Energy Policy 159 (2021) 112610

Table 5 5.4. Kernel density for the marginal government subsidy effect
Results of models with cross terms.
Variables (7) (8) (9) According to the progression of the model, this paper assumes that
government subsidies are a non-parametric function of enterprise size,
lnGS .145* -.671
(.081) (.472) and further verifies the conjecture of the relationship between them in
lnGS×dummy .02 the above results. It is then necessary to further discuss the impact of
(.015) different years on the effectiveness of government subsidies.
lnGS×lnscale .113* The result of kernel density in Fig. 6 shows that there is a similar
(.064)
lnscale .503** − 1.418 − 1.558*
trend of marginal government subsidy effect in different years. What can
(.208) (1.162) (.897) be seen in this figure is the phenomenal growth of the subsidy effect.
ms .026** .025** .033*** Notably, the comparison of the 2014 results with the 2019 results shows
(.011) (.011) (.01) a general increase in the marginal effect of government subsidies. The
lev -.003 -.003 .006
empirical results show such an effect increases year by year. A likely
(.007) (.007) (.006)
growth .137*** .121*** .105*** explanation is that the increase in the marginal effect is a result of
(.041) (.037) (.033) attention and received support from the government. The government’s
roa .023** .021** .014 investment in nurturing the renewable energy industry in the early stage
(.01) (.009) (.01) has been effective, and some enterprises have gradually grown stronger.
Constant 9.112*** 23.057***
(1.788) (8.455)
Based on the above diagram of the kernel density function, the
f(t) YES YES YES subsidy effect surged in 2016, producing a small climax. But the impact
Observations 558 558 465 of the subsidies in subsequent years did not produce another small in­
Notes: Robust standard errors in parentheses; ***p < .01, **p < .05,*p < .1.
cremental surge.
In Column (7), we include the interaction between government subsidies and This may also be related to the sequelae produced after previous
dummy variables. The coefficient of this interactive term is positive but insig­ heavy subsidies. Referring to the timeline for China’s renewable energy
nificant, indicating that enterprises with a large scale may not enjoy a signifi­ subsidies, China began receiving additional revenue from renewable
cantly increasing investment growth. In Column (8), the cross term of the energy tariffs in 2006, which became the main source of subsidy fund­
logarithm of enterprise-scale and government subsidies is considered. ing. Encouraged by policies, the renewable energy industry has achieved
rapid development and growth. Renewable energy projects that have
been included in the subsidy list can enjoy subsidies from the Ministry of
Finance in an orderly manner. From 2012 to 2014, five catalogs of
subsidies were released. This makes the current gap in renewable energy
subsidies so wide which are signs of trouble. The sixth batch was
announced in August 2016 and the seventh batch in June 2018. The
eighth batch was officially launched in March 2020. The frequency of
subsidy declaration has decreased significantly since 2016. On the one
hand, the more projects listed in the subsidy list, the fewer subsidy each
project will receive because of the limited supplementary revenue and
expenditure budget for renewable energy electricity prices. On the other
hand, early subsidies cannot be timely in place.
Because state-owned enterprises have huge political resources (Wu
et al., 2012), it is necessary to further study the characteristics of en­
terprise ownership.
Fig. 7 shows the kernel density function of the government subsidy
effect of state-owned enterprises. State-owned enterprises benefit from
preferential access to concessions (Chow et al., 2010). State-owned en­
terprises can scale up their investments better than wholly private en­
terprises. Combined with the information in the figure, their evolution in
Fig. 5. Partial regression result of moderating effect.

to enterprise investment project expenditure and total asset, and the

more difficult it is to mobilize the enthusiasm of enterprise investment.
The consumption problem still inhibits the enterprises’ willingness
to invest. A likely explanation is that the competitive consciousness and
business strategies of the giants are not as risky as before. To reduce risk,
large companies also tend to invest at a more opportune time, acquiring
the right to develop renewable energy rather than investing in con­
struction and installation costs. Therefore, government subsidies will
increase the subsidy effect with the increase of enterprise size, but the
growth rate of the subsidy effect will slow down.
Thirdly, since the linear model cannot give consistent results, the
model with the relaxation of the assumption is more explanatory, and
the significance and degree of the impact of government subsidies on
specific enterprises vary. The heterogeneity of enterprises of different
sizes is shown in the update of the functional-coefficient models used in
this paper.
Fig. 6. Kernel density for the marginal government subsidy effect in
different year.

8
R. Bai et al.
Fig. 7. The marginal government subsidy effect of state-owned enterprises.
the system is more susceptible to policy subsidies than non-state-owned
enterprises.
Fig. 8 shows the kernel density function of the government subsidy
effect of non-state-owned enterprises. Compared with Fig. 9, the curve in
the figure is significantly smoother, and the growth rate tends to be even
year by year.
5.5. Robustness test
When it comes to robustness, the time trend term in Column (10) is
replaced by the year dummy variable that controls the time effect. Ac­
cording to the results in Table 6, ownership concentration and enterprise
growth significantly promote renewable energy investment.
The new estimated results are shown in Table 6 and Fig. 9, which are
consistent with the main results mentioned earlier, which further
demonstrates the robustness of the results.
6. Conclusions and policy implications
Previous studies have not dealt with the moderating effect in which
taking enterprise-scale into consideration. Compared with the sampling
method, our paper is also quite novel in the setting of a partially linear
model which relaxed the hypothesis and increased the flexibility of the
study. This is exemplified in the work undertaken by Yang et al. (2020).
The impact of government subsidies on renewable energy is treated as a
non-parametric function of enterprise-scale in this paper. The results of
Fig. 8. The marginal government subsidy effect of non-state-owned
enterprises.
9
Energy Policy 159 (2021) 112610
Fig. 9. Partial regression result of moderating effect (taking time fixed effect
into account).
Table 6
Results of the linear partial regression results
(taking time fixed effect into account).
(10)
lnscale − 1.66*
(.845)
ms .033***
(.01)
lev .008
(.006)
growth .129**
(.057)
roa .014
(.011)
Year dummy YES
Observations 465
Note: Standard errors are in parentheses (***p <
.01, **p < .05, *p < .1).
the partial linear function coefficient model further help us understand
the influence of enterprise-scale on the relationship between the two.
From a microscopic perspective, this paper further clarifies and
quantitatively analyzes the marginal impact of government subsidies on
the investment of renewable energy enterprises of different sizes. The
effect of government subsidies on renewable energy investment shows a
rise but the speed tends to decrease with the increase of enterprise size.
From the enterprise characteristic level, ownership concentration and
enterprise growth significantly promote investment in renewable en­
ergy. Kernel density estimation shows that the marginal effect of gov­
ernment subsidies increased gradually from 2014 to 2019. A likely
explanation is that the increase in the marginal effect is a result of
attention and received support from the government.
In practice, some policy suggestions are given:
Firstly, combined with the main results of the model for the marginal
government subsidy effect in different years, it is found that increasing
the level of government subsidy is useful to stimulate renewable energy
investment, which is similar to Zhang et al. (2016). Through financial
support, the government will promote and optimize the allocation of
subsidy funds to further enhance the development level of renewable
energy. In the investment, the government can examine the character­
istics of enterprises to assess their future development of renewable
energy investment, such as the length of growth of enterprises, enter­
prise ownership, and ownership concentration.
Second, governments should consider enterprise-scale while making
renewable energy investments. When it comes to carbon neutrality,
R. Bai et al.
fostering a renewable energy market is crucial. It is time to focus on the
effect of subsidies on renewable energy companies of different sizes.
Policy subsidies signal corporate transformation, suggesting that the
development of thermal power in China is declining, into the renewable
energy sector is the blue ocean strategy of the company. A possible trend
is the transformation of most of China’s energy enterprises. Subsidies
promote investment in renewable energy large enterprises. To strongly
encourage the development of small and medium-sized enterprises may
receive better subsidy incentives, which help to meet the goal of
increasing the share of renewable energy and promoting renewable in­
vestment. There should be stricter supervision over the actual use of
government subsidies received by enterprises to ensure that earmarked
funds are used exclusively.
Third, according to the results of the kernel density map of policy
subsidy effect year by year, the promotion effect of the subsidy on
renewable energy investment surged in 2016 and did not rise again after
that. To improve the renewable energy subsidy mechanism, China must
plan and establish a set of auxiliary mechanisms to relieve the operating
pressure of renewable energy enterprises and guide the renewable en­
ergy industry to speed up the transformation to a low-cost grid. The
green power certificate will help relieve the pressure of insufficient
funds for national renewable energy subsidies and further improve the
subsidy mechanism for new energy electricity. The combination policy
of green card and quota system will be a more potential exploration
mode.
Finally, this paper has discussed the whole renewable energy in­
dustry. It is now necessary to note that in the current field of renewable
energy investment, the development process is divided into different
industries. For example, in addition to government subsidies, private
capital is also more active in the whole solar photovoltaic industry
chain. However, the development of the industrial chain is unbalanced
(Ming et al., 2014). In general, parts of the renewable energy industry
face a dilemma of insufficient funds and excess capacity. Therefore, the
balance of the investment structure is crucial. It is necessary to continue
the research on subsidies policies for different renewable energy
industries.
CRediT authorship contribution statement
Rui Bai: Methodology, Software, Data collection, Data, Formal
analysis, Interpretation, and writing the article. Boqiang Lin: Research
concept, Methodology, Data, Formal analysis, Interpretation, and crit­
ical revision of the article.
Declaration of competing interest
The authors declare that they have no known competing financial
interests or personal relationships that could have appeared to influence
the work reported in this paper.
Acknowledgements
The paper is supported by the pilot programs for major science,
technology and innovation projects toward 2030 of China Energy In­
vestment Corporation—Clean and efficient utilization of coal: Research
on medium and long-term carbon emission reduction paths and energy
structure optimization strategies of China (Grant No. GJNY2030XDXM-
19-20.1).
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