Power shortage and firm performance: Evidence from a Chinese city power shortage index

Extreme climate events and renewable energy development challenge the reliability of the power supply, which is an important guarantee for high-quality economic development and the production and operation of firms. In this paper, we analyzed the relationship between power shortage and firm productivity by developing a city-level power shortage index in China using the text analysis method. The results indicate that power shortage reduces the probability, quantity, and quality of R&D investment and has a negative impact on the total factor productivity (TFP) of firms. However, it has a smaller negative impact on the TFP of large- and medium-sized firms, export-oriented firms, and state-owned firms than others. Our results are robust to alternative measures of power shortage.

Automated summary

Extreme climate events and renewable energy development pose challenges to the reliability of power supply, which is crucial for high-quality economic development and firms' production and operation. This study examines the relationship between power shortage and firm productivity in China by constructing a city-level power shortage index using the text analysis approach. The findings suggest that power shortage reduces the likelihood, quantity, and quality of firms' R&D investment and has a detrimental impact on their total factor productivity (TFP). However, the impact on TFP is relatively smaller for large- and medium-sized firms, export-oriented firms, and state-owned firms compared to others. The results remain robust to alternative measures of power shortage.