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Unraveling the impact of climate policy uncertainty on corporate default risk: Evidence from China

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  • Liu, Junrong
  • Deng, Guoying
  • Yan, Jingzhou
  • Ma, Shibo

Abstract

This paper examines the effect of climate policy uncertainty (CPU) on corporate default risk based on the comprehensive dataset of Chinese A-listed firms. Based on the empirical study, we document a significant positive impact of China’s CPU on the corporate default risk, and the impact sounds systematically aggravating with the increasing term structure of default investigation. Our research also reveals that R&D investment, ESG performance and firm financial constraints function as effective channels between climate policy uncertainty and firm default risk. Also, better local development and higher managerial climate attention have mitigating effects on the relationship between CPU and corporate default risk, while state ownership intensifies the effect of CPU on corporate default risk. These findings highlight the externality of climate policy risk on corporate default risk profile from the empirical perspective.

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  • Liu, Junrong & Deng, Guoying & Yan, Jingzhou & Ma, Shibo, 2023. "Unraveling the impact of climate policy uncertainty on corporate default risk: Evidence from China," Finance Research Letters, Elsevier, vol. 58(PB).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pb:s1544612323007572
    DOI: 10.1016/j.frl.2023.104385
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    References listed on IDEAS

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    Cited by:

    1. Wu, Haoyang & Jiao, Ziyan & Wang, Shipeng & Wu, Zhiruo, 2024. "Corporate mergers and acquisitions: A strategic approach to mitigate expected default frequency," Finance Research Letters, Elsevier, vol. 64(C).
    2. Zhang, Xiekui & Gong, Dayong & Huang, Yihan & Li, Yiting, 2024. "The Government's fiscal and taxation policy effect on enterprise productivity: Policy choice and optimal allocation," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 28-41.
    3. Yikai Zhao & Jun Nagayasu & Xinyi Geng, 2024. "Measuring Climate Policy Uncertainty with LLMs: New Insights into Corporate Bond Credit Spreads," DSSR Discussion Papers 143, Graduate School of Economics and Management, Tohoku University.

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    More about this item

    Keywords

    Climate policy uncertainty; Corporate default risk; ESG; Managerial climate attention;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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