Through the introduction of green finance policies, governments hope to improve the guiding role of institutional investors in green investment and provide financial support for green enterprises. Using the data in China, the difference-in-difference (DID) analysis explores whether the implementation of policies could change institutional investors' attitude to environmental factors when making investment decisions. Considering the effect of investment horizons, we find that long-term institutional investors have shown symmetric preferences on green investment, while short-term institutions are more affected by green finance policies. Additionally, the mechanism analysis shows that green finance policies can influence the green investment of institutional investors not only by affecting stock price returns but also by increasing the innovation capabilities of green companies and thus improving corporate performance. Besides, heterogeneity and moderating effect analyses find that green finance policies can achieve better policy effects when financial institutions invest in non-state-owned enterprises, enterprises with higher quality of information disclosure and poor external supervision. The finding would extend the studies of green investment in emerging markets and present new evidence about the policy effect on institutions' preferences for green investment.

To improve the guiding role of institutional investors in green investment and provide financial support for green enterprises, Chinese government has issued a series of policies to establish a green finance system. We use a difference-in-difference (DID) analysis to explore whether the implementation of policies could change institutional attitudes to environmental factors when making investment decisions. Considering the effect of investment horizon, we find long-term institutional investors have shown symmetric preferences on green investment, while short-term institutions are more affected by green finance policies. Additionally, we find the investment behavior of short-term institutions are highly associated with abnormal return triggered by the policy effect. Besides, the triple-difference (DDD) analysis further proves that the high level of environmental disclosure would expanse the effect of policies, but high quality of external auditors would reduce the policy effect. The finding would extend the studies of green investment in emerging markets and present new evidence about the policy effect on institutions’ preferences for green investment.