Where will corporate capital flow to? Revisiting the impact of China's pilot carbon emission trading system on investment.

As a policy instrument to address climate change, the Carbon Emissions Trading System (ETS) will directly affect the location choice and development strategies of high-emitting firms' off-site investments, which is crucial to achieve optimal allocation of capital factors and coordinated development among regions. Using data of Chinese listed companies from 2007 to 2020, this study assesses for the first time the impact of Carbon Emissions Trading System on regulated firms' off-site investment strategies at the firm level using the Heterogeneity-Robust Difference-in-differences approach. The estimation results indicate that (1) the Carbon Emissions Trading System leads to about 20% reduction in off-site investment by regulated firms, which is mainly reflected in cross-city investment; (2) the heterogeneous investment effect is more obvious in private enterprise groups, but not in state-owned enterprise groups. Government intervention influenced the investment decisions of enterprise groups to make their development strategies more consistent with local economic growth objectives; (3) regulated enterprise groups significantly expanded their production layout locally and reduced off-site production investment; (4) the Carbon Emissions Trading System will promote long-term performance improvement of regulated firms. The above results are enlightening for the construction of Carbon Emissions Trading System in China and provide a new perspective for theoretically assessing the impact of Carbon Emissions Trading System on the competitiveness of enterprises.