The quest for green horizons: Can political turnovers drive green investments? New evidence from China

Abstract

This research examines how political turnovers affect corporate green investments. By analyzing manually collected data on municipal government official turnovers in China spanning from 2007 to 2020, we discover a notable increase in corporate green investments following these turnovers, aligning with resource dependency theory. The upswing in green investment results from both corporate initiatives and government influence. Companies that intensify green investments after political turnovers enjoy benefits such as reduced taxes and increased subsidies. The impact of political turnovers on green investments becomes more pronounced amid economic and political uncertainties, particularly under externally appointed officials. This effect is most significant in the energy sector and non-state-owned enterprises (non-SOEs). Despite the observed surge in green investment activity post-turnovers, there is a tendency for these initiatives to subsequently decrease overall firm performance, likely due to the higher costs associated with green investments. This study contributes to our understanding of how political turnovers shape enterprises' sustainability practices and offers valuable insights for businesses navigating the implications of environmentally responsible development.