The impact of energy governance on firm entry: evidence from new energy demonstration cities in China

Despite China’s substantial efforts to reform its energy structure, there remains a gap in comprehensive assessments of how these changes influence entrepreneurship. This study leverages the New Energy Demonstration Cities policy as a quasi-natural experiment aimed at improving energy structure to examine its impact on firm entry. Drawing on administrative data from business registrations and annual reports spanning 2005 to 2020, our analysis reveals a decline in new firm entries attributable to this policy. This effect appears to stem from a mix of heightened technological barriers, resource allocation barriers, and environmental regulation. Additionally, the policy predominantly restricts firm entry in cities that are neither resource-based nor historically industrial-based. The policy’s impact varies notably across industries, most significantly reducing entries in the small enterprises, tertiary sector, among non-state-owned, non-high-energy-consuming, and non-high-tech businesses, while encouraging entries in high-energy-consuming sectors. These findings suggest that energy structure governance is playing a significant role in reshaping the profile of new market entrants.