Climate Policy Uncertainty Perception, Institutional Fit, and Green Investments

Drawing on real options theory, this study examines the impact of firms’ climate policy uncertainty (CPU) perception on green investments. Unlike prior studies that treat CPU as a homogeneous macro-level factor, this paper conceptualizes it as an individualized firm-level perception and hypothesizes that rising CPU perception increases the value of the option to wait, thereby prompting firms to delay green investments. Using a sample of Chinese listed firms from 2012 to 2022, we employ the Bidirectional Encoder Representations from Transformers (BERT) model to capture firm-level CPU perception, and our findings reveal that if CPU perception increases by 1%, firms’ green investments would decrease by 0.123. Moderation analysis reveals that Confucian culture strengthens the adverse effect of CPU perception on green investments, whereas Western culture mitigates it. Additionally, the study shows that the impact of CPU perception on green investments exhibits a non-linear pattern with increasing marginal effects, such that the adverse effect is more pronounced at higher levels of CPU perception. Moreover, we observe an asymmetric impact, indicating that an increase in CPU perception significantly reduces green investments, whereas a decrease has no significant impact on green investments.