Does green factory certification affect firms’ capacity utilization? Evidence from both the supply and demand sides

This paper employs data from Chinese A-share manufacturing listed companies from 2009 to 2023 and examines the impact of green factory certification (GFC) on firms’ capacity utilization using a difference-in-differences approach. The findings indicate that GFC significantly increases firms’ capacity utilization. The suppression of overinvestment on the supply side and the facilitation of export expansion on the demand side are two potential channels. The effect of mitigating overcapacity through the GFC is more pronounced when local governments exhibit higher environmental attention, when executives have an environmental background, when firms are state-owned or mature, and when climate transition risks are higher. Overall, this study demonstrates that GFC is an effective mechanism for addressing the issue of overcapacity and provides valuable insights for the government to formulate policies to tackle overcapacity from a comprehensive perspective of both supply and demand sides.