Effect of green financial reform and innovation pilot zones on corporate investment efficiency

To the best of our knowledge, this is the first study to examine the effect of pilot green financial reform and innovation zones on corporate investment efficiency. To this end, we rely on a quasi-natural experiment of China's introduction of this pilot policy in 2017. Our sample covers A-share listed Chinese companies from 2015 to 2020, and the difference-in-difference (DID) methodology has primarily been used for analysis. Our findings suggest that firms' inefficient and excessive investments are significantly reduced in the pilot zones. Furthermore, we uncover the mediation effect of agency problems and R&D investment between the establishment of the pilot zones and firms' investment efficiency, reduction of agency problems, and an increase in R&D investment which improves the investment efficiency of firms. Moreover, the investment efficiency of firms with higher equity checks and balances and non-heavy polluters increased significantly, and the inefficient investment of non-state-owned firms and fewer institutional investors' shareholdings decreased significantly, which suggests that the green financial reform and innovation pilot zone has significant financing regulation and investment disincentive effects. Our study has vital policy implications for governments worldwide that have previously committed to and/or are participating in providing green finance incentives.