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Open AccessOpen Access JUSTC Management 25 September 2023

Reaction mechanism of investors of new energy vehicle enterprises to China’s program of retrogressive subsidies in the context of COVID-19 pandemic: Based on the event study method

  • International Institute of Finance, School of Management, University of Science and Technology of China, Hefei 230601, China

Cite this:
https://doi.org/10.52396/JUSTC-2022-0042
More Information
  • Author Bio:

    Zhi Li is a Postdoctoral Fellow at the International Institute of Finance, School of Management, University of Science and Technology of China (USTC). He received his Ph.D. degree from USTC under the supervision of Prof. Jiuchang Wei in 2021. His research mainly focuses on organizational reputation management, corporate crisis management, and corporate strategic behavior management

    Yundong Xie is a Postdoctoral Fellow at the School of Economics and Management, University of Chinese Academy of Sciences. He received his Ph.D. degree from University of Science and Technology of China under the supervision of Prof. Qiang Wu in 2021. His research mainly focuses on management, scientometric, and innovation

  • Corresponding author: E-mail: ydxie@ustc.edu.cn
  • Received Date: 03 March 2022
  • Accepted Date: 16 June 2022
    • Available Online: 25 September 2023
    Abstract

  • Abstract

    In recent years, the subsidy policy of new energy vehicles (NEVs) has promoted the vigorous development of China’s NEV industry. In the past, scholars tended to focus on consumers’ reactions to subsidy policies for NEVs, while attention to the reaction of investors is relatively scarce, especially in the context of major public emergencies. Based on the event study method, this study empirically tested the reaction mode of investors of NEV enterprises to China’s program of retrogressive subsidies (PRS) in the context of COVID-19 pandemic and discussed the differences in investors’ reactions under different enterprise attributes (i.e., whether listed on the Shanghai Stock Exchange, whether located in a first-tier city, whether belonging to state-owned enterprises, and whether belonging to the upstream NEV industry). Our research results provide a reference for the strategic management practices of NEV enterprises and their investors.

    Graphical abstract

    The reaction of investors in new energy vehicle enterprises to China’s program of retrogressive subsidies in the context of COVID-19 pandemic.

    Abstract

    In recent years, the subsidy policy of new energy vehicles (NEVs) has promoted the vigorous development of China’s NEV industry. In the past, scholars tended to focus on consumers’ reactions to subsidy policies for NEVs, while attention to the reaction of investors is relatively scarce, especially in the context of major public emergencies. Based on the event study method, this study empirically tested the reaction mode of investors of NEV enterprises to China’s program of retrogressive subsidies (PRS) in the context of COVID-19 pandemic and discussed the differences in investors’ reactions under different enterprise attributes (i.e., whether listed on the Shanghai Stock Exchange, whether located in a first-tier city, whether belonging to state-owned enterprises, and whether belonging to the upstream NEV industry). Our research results provide a reference for the strategic management practices of NEV enterprises and their investors.

    • Public Summary

    • The investors of NEV enterprises have a negative reaction to the China’s program of retrogressive subsidies.
    • The negative reaction of investors of NEV enterprises listed on the Shanghai Stock Exchange (vs. the Shenzhen Stock Exchange) or located in first-tier cities (vs. nonfirst-tier cities) is weaker.
    • The negative reaction of investors of NEV enterprises that are nonstate-owned (vs. state-owned) or located in the upstream (vs. midstream and downstream) is stronger.

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    • References(43)
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    Wan D, Xue R, Linnenluecke M, et al. The impact of investor attention during COVID-19 on investment in clean energy versus fossil fuel firms. Finance Research Letters, 2021, 43: 101955. doi: 10.1016/j.frl.2021.101955
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    Barberis N C. Thirty years of prospect theory in economics: A review and assessment. Journal of Economic Perspectives, 2013, 27 (1): 173–196. doi: 10.1257/jep.27.1.173
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    Kaustia M. Prospect theory and the disposition effect. Journal of Financial and Quantitative Analysis, 2010, 45 (3): 791–812. doi: 10.1017/s0022109010000244
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    Kahneman D, Tversky A. Prospect theory: An analysis of decision under risk. Econometrica, 1979, 47 (2): 263–292. doi: 10.2307/1914185
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    Abdellaoui M, Bleichrodt H, Paraschiv C. Loss aversion under prospect theory: A parameter-free measurement. Management Science, 2007, 53 (10): 1659–1674. doi: 10.1287/mnsc.1070.0711
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    Olsen R A. Prospect theory as an explanation of risky choice by professional investors: Some evidence. Review of Financial Economics, 1997, 6 (2): 225–232. doi: 10.1016/s1058-3300(97)90008-2
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    Barberis N, Jin L J, Wang, B. Prospect theory and stock market anomalies. The Journal of Finance, 2021, 76 (5): 2639–2687. doi: 10.1111/jofi.13061
    [21]
    Bromiley P. Looking at prospect theory. Strategic Management Journal, 2010, 31 (12): 1357–1370. doi: 10.1002/smj.885
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    Edwards K D. Prospect theory: A literature review. International Review of Financial Analysis, 1996, 5 (1): 19–38. doi: 10.1016/s1057-5219(96)90004-6
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    Liu M, Liu L, Xu S, et al. The influences of government subsidies on performance of new energy firms: A firm heterogeneity perspective. Sustainability, 2019, 11 (17): 4518. doi: 10.3390/su11174518
    [24]
    Sun C, Zhan Y, Du G. Can value-added tax incentives of new energy industry increase firm’s profitability? Evidence from financial data of China’s listed enterprises. Energy Economics, 2020, 86: 104654. doi: 10.1016/j.eneco.2019.104654
    [25]
    Jin Z, Shang Y, Xu J. The impact of government subsidies on private R&D and firm performance: Does ownership matter in China’s manufacturing industry? Sustainability, 2018, 10 (7): 2205. doi: 10.3390/su10072205
    [26]
    Li Y, Zeng B, Wu T, et al. Effects of urban environmental policies on improving firm efficiency: Evidence from Chinese new energy vehicle firms. Journal of Cleaner Production, 2019, 215: 600–610. doi: 10.1016/j.jclepro.2019.01.099
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    Cui L, Kent P, Kim S, et al. Accounting conservatism and firm performance during the COVID-19 pandemic. Accounting & Finance, 2021, 61 (4): 5543–5579. doi: 10.1111/acfi.12767
    [28]
    Kato T, Long C. Executive compensation, firm performance, and corporate governance in China: Evidence from firms listed in the Shanghai and Shenzhen Stock Exchanges. Economic Development and Cultural Change, 2006, 54 (4): 945–983. doi: 10.1086/503583
    [29]
    Boddewyn J J, Brewer T L. International-business political behavior: New theoretical directions. Academy of Management Review, 1994, 19 (1): 119–143. doi: 10.2307/258837
    [30]
    Mohr A, Wang C, Fastoso F. The contingent effect of state participation on the dissolution of international joint ventures: A resource dependence approach. Journal of International Business Studies, 2016, 47 (4): 408–426. doi: 10.1057/jibs.2016.14
    [31]
    Bradley S W, Aldrich H, Shepherd D A, et al. Resources, environmental change, and survival: Asymmetric paths of young independent and subsidiary organizations. Strategic Management Journal, 2011, 32 (5): 486–509. doi: 10.5172/jmo.2011.857
    [32]
    Zheng W, Singh K, Mitchell W. Buffering and enabling: The impact of interlocking political ties on firm survival and sales growth. Strategic Management Journal, 2015, 36 (11): 1615–1636. doi: 10.1002/smj.2301
    [33]
    Hillman A J, Zardkoohi A, Bierman L. Corporate political strategies and firm performance: Indications of firm-specific benefits from personal service in the US government. Strategic Management Journal, 1999, 20 (1): 67–81. doi: 10.1002/(sici)1097-0266(199901)20:1<67::aid-smj22>3.0.co;2-t
    [34]
    Oliver C, Holzinger I. The effectiveness of strategic political management: A dynamic capabilities framework. Academy of Management Review, 2008, 33 (2): 496–520. doi: 10.5465/amr.2008.31193538
    [35]
    Hillman A J, Withers M C, Collins B J. Resource dependence theory: A review. Journal of Management, 2009, 35 (6): 1404–1427. doi: 10.1177/0149206309343469
    [36]
    Ding S, Jia C, Wu Z, et al. Executive political connections and firm performance: Comparative evidence from privately controlled and state-owned enterprises. International Review of Financial Analysis, 2014, 36: 153–167. doi: 10.1016/j.irfa.2013.12.006
    [37]
    Li H, Zhang, Y. The role of managers’ political networking and functional experience in new venture performance: Evidence from China’s transition economy. Strategic Management Journal, 2007, 28 (8): 791–804. doi: 10.1002/smj.605
    [38]
    Hu F, Leung S C. Top management turnover, firm performance and government control: Evidence from China’s listed state-owned enterprises. The International Journal of Accounting, 2012, 47 (2): 235–262. doi: 10.1016/j.intacc.2012.03.006
    [39]
    Godfrey P C, Merrill C B, Hansen J M. The relationship between corporate social responsibility and shareholder value: An empirical test of the risk management hypothesis. Strategic Management Journal, 2009, 30 (4): 425–445. doi: 10.1002/smj.750
    [40]
    Li Z, Wei J, Marinova D V, et al. Benefits or costs? The effects of diversification with cross-industry knowledge on corporate value under crisis situation. Journal of Knowledge Management, 2021, 25 (1): 175–226. doi: 10.1108/jkm-11-2019-0659
    [41]
    Wei J, Ouyang Z, Chen H. Well known or well liked? The effects of corporate reputation on firm value at the onset of a corporate crisis. Strategic Management Journal, 2017, 38 (10): 2103–2120. doi: 10.1002/smj.2639
    [42]
    Xu J, Wei J, Chen H. Pollution stigma and manufacturing firms’ disengagement effort: Interactive effects of pressures from external stakeholders. Organization & Environment, 2021, 34 (2): 243–266. doi: 10.1177/1086026619893960
    [43]
    Lo C K, Tang C S, Zhou Y, et al. Environmental incidents and the market value of firms: An empirical investigation in the Chinese context. Manufacturing & Service Operations Management, 2018, 20 (3): 422–439. doi: 10.1287/msom.2017.0680
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    Figure  1.  NEV enterprise investors’ reaction to the PRS.

    [1]
    Dong L, Miao G, Wen W. China’s carbon neutrality policy: Objectives, impacts and paths. East Asian Policy, 2021, 13 (1): 5–18. doi: 10.1142/s1793930521000015
    [2]
    Mallapaty S. How China could be carbon neutral by mid-century. Nature, 2020, 586 (7830): 482–484. doi: 10.1038/d41586-020-02927-9
    [3]
    Xu J, Wei J, Lu L. Strategic stakeholder management, environmental corporate social responsibility engagement, and financial performance of stigmatized firms derived from Chinese special environmental policy. Business Strategy and the Environment, 2019, 28 (6): 1027–1044. doi: 10.1002/bse.2299
    [4]
    Liu C, Liu Y, Zhang D, et al. The capital market responses to new energy vehicle (NEV) subsidies: An event study on China. Energy Economics, 2022, 105: 105677. doi: 10.1016/j.eneco.2021.105677
    [5]
    Zhang L, Wang L, Chai J. Influence of new energy vehicle subsidy policy on emission reduction of atmospheric pollutants: A case study of Beijing, China. Journal of Cleaner Production, 2020, 275: 124069. doi: 10.1016/j.jclepro.2020.124069
    [6]
    Jiang C, Zhang Y, Zhao Q, et al. The impact of purchase subsidy on enterprises’ R&D efforts: Evidence from China’s new energy vehicle industry. Sustainability, 2020, 12 (3): 1105. doi: 10.3390/su12031105
    [7]
    Li W, Long R, Chen H. Consumers’ evaluation of national new energy vehicle policy in China: An analysis based on a four paradigm model. Energy Policy, 2016, 99: 33–41. doi: 10.1016/j.enpol.2016.09.050
    [8]
    Wang J, Guthrie D, Xiao Z. The rise of SASAC: Asset management, ownership concentration, and firm performance in China’s capital markets. Management and Organization Review, 2012, 8: 253–281. doi: 10.1111/j.1740-8784.2011.00236.x
    [9]
    Yu F, Wang L, Li X. The effects of government subsidies on new energy vehicle enterprises: The moderating role of intelligent transformation. Energy Policy, 2020, 141: 111463. doi: 10.1016/j.enpol.2020.111463
    [10]
    Austmann L M. Drivers of the electric vehicle market: A systematic literature review of empirical studies. Finance Research Letters, 2020, 41: 101846. doi: 10.1016/j.frl.2020.101846
    [11]
    Jiang C, Zhang Y, Bu M, et al. The effectiveness of government subsidies on manufacturing innovation: Evidence from the new energy vehicle industry in China. Sustainability, 2018, 10 (6): 1692. doi: 10.3390/su10061692
    [12]
    Wan D, Xue R, Linnenluecke M, et al. The impact of investor attention during COVID-19 on investment in clean energy versus fossil fuel firms. Finance Research Letters, 2021, 43: 101955. doi: 10.1016/j.frl.2021.101955
    [13]
    Barberis N C. Thirty years of prospect theory in economics: A review and assessment. Journal of Economic Perspectives, 2013, 27 (1): 173–196. doi: 10.1257/jep.27.1.173
    [14]
    Holmes Jr R M, Bromiley P, Devers C E, et al. Management theory applications of prospect theory: Accomplishments, challenges, and opportunities. Journal of Management, 2011, 37 (4): 1069–1107. doi: 10.1177/0149206310394863
    [15]
    Kaustia M. Prospect theory and the disposition effect. Journal of Financial and Quantitative Analysis, 2010, 45 (3): 791–812. doi: 10.1017/s0022109010000244
    [16]
    Kahneman D, Tversky A. Prospect theory: An analysis of decision under risk. Econometrica, 1979, 47 (2): 263–292. doi: 10.2307/1914185
    [17]
    Abdellaoui M, Bleichrodt H, Paraschiv C. Loss aversion under prospect theory: A parameter-free measurement. Management Science, 2007, 53 (10): 1659–1674. doi: 10.1287/mnsc.1070.0711
    [18]
    Hens T, Vlcek M. Does prospect theory explain the disposition effect? Journal of Behavioral Finance, 2011, 12 (3): 141–157. doi: 10.1080/15427560.2011.601976
    [19]
    Olsen R A. Prospect theory as an explanation of risky choice by professional investors: Some evidence. Review of Financial Economics, 1997, 6 (2): 225–232. doi: 10.1016/s1058-3300(97)90008-2
    [20]
    Barberis N, Jin L J, Wang, B. Prospect theory and stock market anomalies. The Journal of Finance, 2021, 76 (5): 2639–2687. doi: 10.1111/jofi.13061
    [21]
    Bromiley P. Looking at prospect theory. Strategic Management Journal, 2010, 31 (12): 1357–1370. doi: 10.1002/smj.885
    [22]
    Edwards K D. Prospect theory: A literature review. International Review of Financial Analysis, 1996, 5 (1): 19–38. doi: 10.1016/s1057-5219(96)90004-6
    [23]
    Liu M, Liu L, Xu S, et al. The influences of government subsidies on performance of new energy firms: A firm heterogeneity perspective. Sustainability, 2019, 11 (17): 4518. doi: 10.3390/su11174518
    [24]
    Sun C, Zhan Y, Du G. Can value-added tax incentives of new energy industry increase firm’s profitability? Evidence from financial data of China’s listed enterprises. Energy Economics, 2020, 86: 104654. doi: 10.1016/j.eneco.2019.104654
    [25]
    Jin Z, Shang Y, Xu J. The impact of government subsidies on private R&D and firm performance: Does ownership matter in China’s manufacturing industry? Sustainability, 2018, 10 (7): 2205. doi: 10.3390/su10072205
    [26]
    Li Y, Zeng B, Wu T, et al. Effects of urban environmental policies on improving firm efficiency: Evidence from Chinese new energy vehicle firms. Journal of Cleaner Production, 2019, 215: 600–610. doi: 10.1016/j.jclepro.2019.01.099
    [27]
    Cui L, Kent P, Kim S, et al. Accounting conservatism and firm performance during the COVID-19 pandemic. Accounting & Finance, 2021, 61 (4): 5543–5579. doi: 10.1111/acfi.12767
    [28]
    Kato T, Long C. Executive compensation, firm performance, and corporate governance in China: Evidence from firms listed in the Shanghai and Shenzhen Stock Exchanges. Economic Development and Cultural Change, 2006, 54 (4): 945–983. doi: 10.1086/503583
    [29]
    Boddewyn J J, Brewer T L. International-business political behavior: New theoretical directions. Academy of Management Review, 1994, 19 (1): 119–143. doi: 10.2307/258837
    [30]
    Mohr A, Wang C, Fastoso F. The contingent effect of state participation on the dissolution of international joint ventures: A resource dependence approach. Journal of International Business Studies, 2016, 47 (4): 408–426. doi: 10.1057/jibs.2016.14
    [31]
    Bradley S W, Aldrich H, Shepherd D A, et al. Resources, environmental change, and survival: Asymmetric paths of young independent and subsidiary organizations. Strategic Management Journal, 2011, 32 (5): 486–509. doi: 10.5172/jmo.2011.857
    [32]
    Zheng W, Singh K, Mitchell W. Buffering and enabling: The impact of interlocking political ties on firm survival and sales growth. Strategic Management Journal, 2015, 36 (11): 1615–1636. doi: 10.1002/smj.2301
    [33]
    Hillman A J, Zardkoohi A, Bierman L. Corporate political strategies and firm performance: Indications of firm-specific benefits from personal service in the US government. Strategic Management Journal, 1999, 20 (1): 67–81. doi: 10.1002/(sici)1097-0266(199901)20:1<67::aid-smj22>3.0.co;2-t
    [34]
    Oliver C, Holzinger I. The effectiveness of strategic political management: A dynamic capabilities framework. Academy of Management Review, 2008, 33 (2): 496–520. doi: 10.5465/amr.2008.31193538
    [35]
    Hillman A J, Withers M C, Collins B J. Resource dependence theory: A review. Journal of Management, 2009, 35 (6): 1404–1427. doi: 10.1177/0149206309343469
    [36]
    Ding S, Jia C, Wu Z, et al. Executive political connections and firm performance: Comparative evidence from privately controlled and state-owned enterprises. International Review of Financial Analysis, 2014, 36: 153–167. doi: 10.1016/j.irfa.2013.12.006
    [37]
    Li H, Zhang, Y. The role of managers’ political networking and functional experience in new venture performance: Evidence from China’s transition economy. Strategic Management Journal, 2007, 28 (8): 791–804. doi: 10.1002/smj.605
    [38]
    Hu F, Leung S C. Top management turnover, firm performance and government control: Evidence from China’s listed state-owned enterprises. The International Journal of Accounting, 2012, 47 (2): 235–262. doi: 10.1016/j.intacc.2012.03.006
    [39]
    Godfrey P C, Merrill C B, Hansen J M. The relationship between corporate social responsibility and shareholder value: An empirical test of the risk management hypothesis. Strategic Management Journal, 2009, 30 (4): 425–445. doi: 10.1002/smj.750
    [40]
    Li Z, Wei J, Marinova D V, et al. Benefits or costs? The effects of diversification with cross-industry knowledge on corporate value under crisis situation. Journal of Knowledge Management, 2021, 25 (1): 175–226. doi: 10.1108/jkm-11-2019-0659
    [41]
    Wei J, Ouyang Z, Chen H. Well known or well liked? The effects of corporate reputation on firm value at the onset of a corporate crisis. Strategic Management Journal, 2017, 38 (10): 2103–2120. doi: 10.1002/smj.2639
    [42]
    Xu J, Wei J, Chen H. Pollution stigma and manufacturing firms’ disengagement effort: Interactive effects of pressures from external stakeholders. Organization & Environment, 2021, 34 (2): 243–266. doi: 10.1177/1086026619893960
    [43]
    Lo C K, Tang C S, Zhou Y, et al. Environmental incidents and the market value of firms: An empirical investigation in the Chinese context. Manufacturing & Service Operations Management, 2018, 20 (3): 422–439. doi: 10.1287/msom.2017.0680
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