Climate policy uncertainty and firm-level total factor productivity: Evidence from China

TLDR

The study investigates how climate policy uncertainty influences firm‑level total factor productivity among 2,605 Chinese A‑share listed companies in the mining, manufacturing, and energy sectors from 2009 to 2020. Using firm‑level panel data, the authors analyze the relationship between CPU and TFP across these sectors over the 12‑year period. They find that CPU reduces TFP—especially for low‑productivity, non‑state‑owned, labor‑intensive, and capital‑intensive firms—by curbing R&D investment and free cash flow, with the effect mediated through capital status, and the results remain robust to endogeneity tests.

Abstract

Using 2605 Chinese A-share listed companies in the mining, manufacturing, and energy production and supply sectors from 2009 to 2020, we examine the relationship between climate policy uncertainty (CPU) and firm-level total factor productivity (TFP). The main findings are as follows: First, CPU significantly reduces firm-level TFP, with a greater impact on low-productivity firms than on high-productivity firms; second, the negative effect of CPU on firm-level TFP is most pronounced for non-state-owned, labor-intensive, and capital-intensive companies; third, CPU hinders research and development investment and reduces the amount of free cash flow. These results indicate that CPU exerts negative impacts on firm-level TFP mainly via its effects on the capital status of the companies. Our findings remain valid after a series of robustness tests and controlling for endogeneity. The government should introduce forward-looking climate policies to reduce the negative impact of policy uncertainty.