Ultra-High Voltage Transmission and Corporate Operational Risk: Evidence from China
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This study investigates the causal impact of China’s Ultra-High Voltage (UHV) transmission infrastructure on corporate operational risk. As a cornerstone of the national energy strategy, the UHV grid enables the efficient transfer of electricity from resource-rich western regions to industrialized eastern provinces, fundamentally reshaping the energy landscape for firms. Leveraging the staggered rollout of UHV projects from 2007 to 2016 as a quasi-natural experiment, we employ a robust Difference-in-Differences framework using the Callaway and Sant’Anna (2020) estimator to identify the dynamic treatment effects. The analysis reveals that UHV commissioning significantly reduces firms’ operational risk, measured by the volatility of Return on Assets (ROA), with the effect growing in magnitude over time. Mechanism analyses suggest that this reduction is partially mediated by increased green innovation and enhanced financial flexibility. The heterogeneity analysis indicates that the effect is stronger for non-state-owned enterprises, firms in energy-intensive industries, and those located in power-receiving provinces. These findings highlight the firm-level benefits of large-scale public infrastructure and offer valuable implications for policymakers, managers, and investors regarding the strategic importance of energy stability. The study contributes to the literature by connecting macro-level infrastructure policy with micro-level corporate risk and innovation outcomes.
Abstract
This study investigates the causal impact of China’s Ultra-High Voltage (UHV) transmission infrastructure on corporate operational risk. As a cornerstone of the national energy strategy, the UHV grid enables the efficient transfer of electricity from resource-rich western regions to industrialized eastern provinces, fundamentally reshaping the energy landscape for firms. Leveraging the staggered rollout of UHV projects from 2007 to 2016 as a quasi-natural experiment, we employ a robust Difference-in-Differences framework using the Callaway and Sant’Anna (2020) estimator to identify the dynamic treatment effects. The analysis reveals that UHV commissioning significantly reduces firms’ operational risk, measured by the volatility of Return on Assets (ROA), with the effect growing in magnitude over time. Mechanism analyses suggest that this reduction is partially mediated by increased green innovation and enhanced financial flexibility. The heterogeneity analysis indicates that the effect is stronger for non-state-owned enterprises, firms in energy-intensive industries, and those located in power-receiving provinces. These findings highlight the firm-level benefits of large-scale public infrastructure and offer valuable implications for policymakers, managers, and investors regarding the strategic importance of energy stability. The study contributes to the literature by connecting macro-level infrastructure policy with micro-level corporate risk and innovation outcomes.