The path towards renewable energy: business transformation processes and inefficient investment

Abstract The pressing demand for decarbonization within the context of economic development has generated substantial opportunities for the rapid growth of renewable energy. Consequently, further research is essential to promote the advancement of the renewable energy sector, with a crucial emphasis on understanding the barriers firms face when entering this field. This study investigates the aforementioned issue by examining the relationship between business expansion and inefficient investment among China's listed renewable energy companies. First, we compared phased investment (PI-type) and merger-and-acquisition (M&A-type) renewable energy enterprises. The preliminary results revealed the presence of entry barriers: the inefficient investment of PI-type enterprises exhibited an inverted U-shaped relationship with the expansion of their renewable energy business, whereas there was no significant relationship for M&A-type enterprises. Furthermore, we examined the underlying causal relationships by accounting for industry trends and constructing instrumental variables. Additionally, we conduct a moderation effect analysis on the nonlinear relationship based on traditional theories of enterprise business expansion and market competition. By comparing PI-type with M&A-type enterprises, we provide new empirical evidence supporting traditional theoretical frameworks. Finally, considering the unique characteristics of the renewable energy industry, we examine how three types of government roles mitigate entry barriers. These conclusions serve as a reference for governments to formulate policies for renewable energy development and help enterprises understand the trade-offs in transitioning into emerging industries.