Government-guided voluntary environmental regulations and the entry of green investors: Evidence from the Chinese green factory program

Leveraging China's distinctive Green Factory Program, we analyse investment data from publicly listed companies and securities funds to assess how voluntary environmental regulations influence the behaviour of green investors. Our findings indicate that the program significantly increased both the number and proportion of green investors attracted to participating firms. The observed effects are driven by several key mechanisms: reduced environmental information asymmetry, enhanced government incentives, improved market performance, and better risk management facilitated by the program. Additional analysis reveals that the impact is especially pronounced among firms with lower environmental sensitivity and less media scrutiny, as well as in regions facing stronger environmental governance challenges and legal risks. Overall, our study provides robust evidence that voluntary environmental regulations can meaningfully shape the investment decisions of green investors.