The effect and mechanism of subsidies on green total factor productivity of enterprises

ABSTRACT Improving green total factor production is crucial to addressing the issue of environmental pollution and global climate change. Government subsidy policy is the key institutional arrangement to improve green total factor productivity. It is of great significance to explore the impact of government subsidy policy on green total factor productivity. Based on A-share listed companies from 2007 to 2022, this study empirically tested the impact of government subsidy policies on enterprises’ improvement of green total factor productivity and its mechanism, as well as conducting an in-depth study on the nature of enterprise property rights, regional, industrial, and firm heterogeneity. The findings are as follows: First, government subsidies have a significant promoting effect on the green total factor productivity of enterprises, and the conclusion is still valid after sensitivity analysis and robustness test. Second, the mechanism test discovered that the resource and signal attributes of government subsidies can boost green total factor productivity by alleviating enterprises financing limitations. Third, further research finds that the promotion effect of government subsidies on green total factor productivity of enterprises is more significant in nonstate-owned enterprises, enterprises in the eastern and western regions, high-tech enterprises and nonhigh-polluting enterprises.