Climate policy uncertainty and the cost of corporate bond
ZHAI Pengxiang1 , LEI Lei2 , FAN Ying3,4 , GUO Kun5 , ZHANG Dayong6 , JI Qiang7,8 (1. School of Economics and Management, Beijing University of Chemical Technology, Beijing 100029, China; 2. School of Accounting, Southwestern University of Finance and Economics, Chengdu 611130, China; 3. School of Economics and Management, Beihang University, Beijing 100191, China; 4. Laboratory for Low-carbon Intelligent Governance, Beihang University, Beijing 100191, China; 5. School of Economics and Management, University of Chinese Academy of Sciences, Beijing 100190, China; 6. Research Institute of Economics and Management, Southwestern University of Finance and Economics, Chengdu 611130, China; 7. Institutes of Science and Development, Chinese Academy of Sciences, Beijing 100190, China; 8. School of Public Policy and Management, University of Chinese Academy of Sciences, Beijing 100049, China)
Abstract Identifying and addressing various financial risks on the way toward low-carbon transition is crucial for China to achieve its dual carbon goal. By performing textual analysis of newspaper articles, this paper constructs a novel index of climate policy uncertainty for Chinato examine the impact of the climate policy shock on the corporate bond cost as well as themechanism behind the relationship. From a climate policy-cash flow sensitive perspective, thispaper develops a theoretical model of financing decision-making under climate policy uncertaintyand empirically verifies the hypothesis with a dataset of Chinese-listed companies from 2009–2020. The results show that bond spreads of climate policy-sensitive firms are significantly higherthan that of climate policy-insensitive firms, which indicates that climate policy uncertaintysignificantly deteriorates corporate bond costs in China. Moreover, this effect increases with thematurity of the corporate bond and the level of climate policy uncertainty and is more profoundin firms with a negative sensitivity to changes in climate policies. The results also prove thatinternal environmental governance and external regulatory enforcement intensity are two keychannels by which the climate policy shock can impact the cost of corporate bonds in China.This paper contributes to the research of climate finance by providing a theoretical frameworkand empirical evidence on the relationship between climate policy shock and corporate bond costand thus is crucial for policymakers to understand micro-level financing and investment risk inChina under the dual carbon goal.
Keywords climate policy uncertainty; bond cost; ESG; environmental regulatory enforcement;climate risk