ABSTRACT
This study examines the impact of the Chinese regional emission trading system (ETS) pilots on enterprise transformation from the perspective of diversification. We use data on Chinese A-share listed companies from 2004 to 2021, and adopt the staggered difference-in-differences (DID) and difference-in-difference-in-differences (DDD) models. The empirical results show that first, the ETS significantly increases the product quantity and revenue diversification of regulated firms. Second, the ETS promotes enterprise diversification through three channels: emission cost, emission risk, and market efficiency. Third, the ETS has a greater impact on the diversification of state-owned enterprises, firms with high business concentration, and firms with low innovation investment. Fourth, the ETS-driven diversification has not been successful as it has increased firms' costs and reduced their profitability. We recommend introducing industrial policies to guide the transformation of enterprises, encourage them to improve their innovation capabilities, and choose appropriate transformation strategies.
