Climate policy uncertainty and corporate investment efficiency: evidence from China

Despite the notable impact of climate policy uncertainty (CPU) on capital markets, there has been a lack of research on how it affects corporate investment efficiency (CIE). To address this gap, using data from 2,605 non-financial listed companies from the Shanghai and Shenzhen stock exchanges between 2009 and 2020, this study identifies the effect of the CPU on the CIE. The results show that the CPU adversely affects the CIE in all industries, and the impact is heterogeneous for firms with different resources, with a more significant influence on non-state-owned, technology-intensive companies, and firms where executives have lower levels of education; whereas firms with higher TFP may increase CIE under CPU. Furthermore, CPU has a considerable adverse influence on CIE by harming corporate governance, without necessarily diminishing free cash flow. The results indicate that firms' resource endowment has a critical bearing on its CIE under an uncertain policy environment.