11. Corporate Financing and Investment Decisions in the Renewable Energy Sector

Increasing investments in renewable energy (RE) are expected to contribute to the growth of the energy sector as a whole, and thus to general economic growth. Recent research indicates that increasing investments in RE has several potential benefits such as achieving sustainable economic recovery from the financial crisis, ensuring a country’s energy security, and fighting climate change and environmental pollution. Apart from public support in the form of energy policies and mechanisms such as governmental grants and subsidies, the growth of the RE sector largely depends on private external financing. This chapter analyzes the corporate financing and investment activities of RE companies by focusing on firm-level and country-level factors. An investor protection perspective is taken when choosing the country-level factors, since the type of external financing obtained by companies is largely driven by outside investors’ willingness to supply it. Given the growth opportunities of firms, the evidence indicates the importance of the relationship between debt level and investment.