This paper examines whether China’s 2017 green finance reform and innovation pilot zones policy shifts long-horizon institutional ownership in heavy-polluting firms. Using Chinese A-share listed heavy polluters from 2011 to 2023, we employ a DID design and find that the pilot zones policy significantly increases long-term institutional ownership, robust across sensitivity checks. Mechanism analysis shows the effect works through rising environmental protection investment and green innovation capacity, rather than eased financing constraints. The ownership effect operates primarily through rule-based allocation channels, such as passive index tracking and benchmark-driven rebalancing, with active discretionary investors responding more weakly. The effect is concentrated among private firms, smaller firms, and firms in regions with stronger environmental regulation. Overall, this study shows that the pilot zones policy reshapes long-term capital allocation through capital-market mechanisms, reflecting both discretionary investor recognition and rule-based reallocation, rather than merely validating its stated policy objectives.
Lei et al. (Thu,) studied this question.