Climate policy uncertainty and the cost of corporate bond

ZHAI Pengxiang, LEI Lei, FAN Ying, GUO Kun, ZHANG Dayong, JI Qiang

Systems Engineering - Theory & Practice ›› 2024, Vol. 44 ›› Issue (11) : 3520-3536.

PDF(446 KB)
PDF(446 KB)
Systems Engineering - Theory & Practice ›› 2024, Vol. 44 ›› Issue (11) : 3520-3536. DOI: 10.12011/SETP2023-1910

Climate policy uncertainty and the cost of corporate bond

  • ZHAI Pengxiang1, LEI Lei2, FAN Ying3,4, GUO Kun5, ZHANG Dayong6, JI Qiang7,8
Author information +
History +

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 China to examine the impact of the climate policy shock on the corporate bond cost as well as the mechanism behind the relationship. From a climate policy-cash flow sensitive perspective, this paper develops a theoretical model of financing decision-making under climate policy uncertainty and 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 higher than that of climate policy-insensitive firms, which indicates that climate policy uncertainty significantly deteriorates corporate bond costs in China. Moreover, this effect increases with the maturity of the corporate bond and the level of climate policy uncertainty and is more profound in firms with a negative sensitivity to changes in climate policies. The results also prove that internal environmental governance and external regulatory enforcement intensity are two key channels 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 framework and empirical evidence on the relationship between climate policy shock and corporate bond cost and thus is crucial for policymakers to understand micro-level financing and investment risk in China under the dual carbon goal.

Key words

climate policy uncertainty / bond cost / ESG / environmental regulatory enforcement / climate risk

Cite this article

Download Citations
ZHAI Pengxiang , LEI Lei , FAN Ying , GUO Kun , ZHANG Dayong , JI Qiang. Climate policy uncertainty and the cost of corporate bond. Systems Engineering - Theory & Practice, 2024, 44(11): 3520-3536 https://doi.org/10.12011/SETP2023-1910

References

[1] Gulen H, Ion M. Policy uncertainty and corporate investment[J]. The Review of Financial Studies, 2016, 29(3): 523-564. [2] 刘贯春, 段玉柱, 刘媛媛. 经济政策不确定性、资产可逆性与固定资产投资 [J]. 经济研究, 2019, 54(8): 53-70. Liu G C, Duan Y Z, Liu Y Y. Economic policy uncertainty, asset reversibility, and real investment: Evidence from China[J]. Economic Research Journal, 2019, 54(8): 53-70. [3] Van Der Ploeg F, Rezai A. The risk of policy tipping and stranded carbon assets[J]. Journal of Environmental Economics and Management, 2020, 100: 102258. [4] Caldecott B L, Tilbury J, Yuge M. Stranded down under? Environment-related factors changing China’s demand for coal and what this means for Australian coal assets[R]. Smith School of Enterprise and the Environment, University of Oxford, 2013. [5] Fard A, Javadi S, Kim I. Environmental regulation and the cost of bank loans: International evidence[J]. Journal of Financial Stability, 2020, 51: 100797. [6] Ehlers T, Packer F, De Greiff K. The pricing of carbon risk in syndicated loans: Which risks are priced and why?[J]. Journal of Banking & Finance, 2022, 136: 106180. [7] 雷雷, 张大永, 姬强. 共同机构持股与企业 ESG 表现 [J]. 经济研究, 2023, 58(4): 133-151. Lei L, Zhang D Y, Ji Q. Common institutional ownership and corporate esg performance[J]. Economic Research Journal, 2023, 58(4): 133-151. [8] 闵峰, 吴宝辉, 文凤华. 股权溢价的驱动因素和传导机制研究: 基于中国股票市场的证据 [J]. 系统工程理论与实践, 2023, 43(4): 1044-1067. Min F, Wu B H, Wen F H. The driving factors and transmission mechanism of equity premium: Evidence from China’s stock market[J]. Systems Engineering — Theory & Practice, 2023, 43(4): 1044-1067. [9] Chava S. Environmental externalities and cost of capital[J]. Management Science, 2014, 60(9): 2223-2247. [10] Bolton P, Kacperczyk M. Do investors care about carbon risk?[J]. Journal of Financial Economics, 2021, 142(2): 517-549. [11] Duan T, Li F W, Wen Q. Is carbon risk priced in the cross section of corporate bond returns?[J]. Journal of Financial and Quantitative Analysis, 2023. doi: 10.1017/S0022109023000832. [12] 王永钦, 薛笑阳. 法治建设与金融高质量发展——来自中国债券市场的证据 [J]. 经济研究, 2022, 57(10): 173-190. Wang Y Q, Xue X Y. Law and high-quality financial development: Evidence from bond markets in China[J]. Economic Research Journal, 2022, 57(10): 173-190. [13] Engle R F, Giglio S, Kelly B, et al. Hedging climate change news[J]. The Review of Financial Studies, 2020, 33(3): 1184-1216. [14] 姬强, 赵万里, 张大永, 等. 气候风险感知对金融市场的影响——基于中国企业层面的微观证据 [J]. 计量经济学报, 2022, 2(3): 666-680. Ji Q, Zhao W L, Zhang D Y, et al. Climate risk perception and its impacts on financial markets: Micro-evidence from listed firms in China[J]. China Journal of Econometrics, 2022, 2(3): 666-680. [15] Sautner Z, Van Lent L, Vilkov G, et al. Firm‐level climate change exposure[J]. The Journal of Finance, 2023, 78(3): 1449-1498. [16] Krueger P, Sautner Z, Starks L T. The importance of climate risks for institutional investors[J]. The Review of Financial Studies, 2020, 33(3): 1067-1111. [17] Stroebel J, Wurgler J. What do you think about climate finance?[J]. Journal of Financial Economics, 2021, 142(2): 487-498. [18] 刘振华, 丁志华, 段钊平. 气候政策不确定性会加剧能源市场间极端风险溢出吗?[J]. 系统工程理论与实践, 2023, 43(6): 1651-1667. Liu Z H, Ding Z H, Duan Z P. Does climate policy uncertainty exacerbate extreme risk spillover across energy markets?[J]. Systems Engineering — Theory & Practice, 2023, 43(6): 1651-1667. [19] 丁时杰, 梁治朋, 谌金宇. 时频视角下气候政策不确定性与能源、金属市场的溢出效应研究 [J]. 系统工程理论与实 践, 2023, 43(8): 2222-2235. Ding S J, Liang Z P, Chen J Y. Research on the spillover effects among climate policy uncertainty, energy, and metal markets from the time-frequency perspective[J]. Systems Engineering — Theory & Practice, 2023, 43(8): 2222-2235. [20] 廖华, 王方志, 滕美萱. 气候经济复杂系统建模中的气候损失与适应研究进展 [J]. 系统工程理论与实践, 2023, 43(8): 2179-2194. Liao H, Wang F Z, Teng M X. Advances in climate damage and adaptation research in modelling complex climate-economy system[J]. Systems Engineering — Theory & Practice, 2023, 43(8): 2179-2194. [21] Roncoroni A, Battiston S, Escobar-Farfán L O, et al. Climate risk and financial stability in the network of banks and investment funds[J]. Journal of Financial Stability, 2021, 54: 100870. [22] Semieniuk G, Campiglio E, Mercure J F, et al. Low‐carbon transition risks for finance[J]. Wiley Interdisciplinary Reviews: Climate Change, 2021, 12(1): E678. [23] Sautner Z, Van Lent L, Vilkov G, et al. Pricing climate change exposure[J]. Management Science, 2023, 69(12), 7540-7561. [24] Matsumura E M, Prakash R, Vera-Munoz S C. Firm-value effects of carbon emissions and carbon disclosures[J]. The Accounting Review, 2014, 89(2): 695-724. [25] 闫海洲, 陈百助. 气候变化、环境规制与公司碳排放信息披露的价值 [J]. 金融研究, 2017(6): 142-158. Yan H Z, Chen B Z. Climate change, environment regulation and the firm value of carbon emissions disclosure[J]. Journal of Financial Research, 2017(6): 142-158. [26] Ilhan E, Sautner Z, Vilkov G. Carbon tail risk[J]. The Review of Financial Studies, 2021, 34(3): 1540-1571. [27] Hsu P H, Li K, Tsou C Y. The pollution premium[J]. The Journal of Finance, 2023, 78(3): 1343-1392. [28] Huang B, Punzi M T, Wu Y. Do banks price environmental transition risks? Evidence from a quasi-natural experiment in China[J]. Journal of Corporate Finance, 2021, 69: 101983. [29] Chen X, Chen X, Xu L, et al. Attention to climate change and downside risk: Evidence from China[J]. Risk Analysis, 2023, 43: 1011-1031. [30] 戴国强, 孙新宝. 我国企业债券信用利差宏观决定因素研究 [J]. 财经研究, 2011, 37(12): 61-71. Dai G Q, Sun X B. Climate change, on the macro determinants of credit spreads of corporate bonds in China[J]. Journal of Finance and Economics, 2011, 37(12): 61-71. [31] 王茹婷, 彭方平, 李维, 等. 打破刚性兑付能降低企业融资成本吗?[J]. 管理世界, 2022, 38(4): 42-64. Wang R T, Peng F P, Li W, et al. Climate change, does terminating rigid payment diminish financing cost of companies?[J]. Journal of Management World, 2022, 38(4): 42-64. [32] Seltzer L H, Starks L, Zhu Q. Climate regulatory risk and corporate bonds[R]. National Bureau of Economic Research, 2022. doi: 10.3386/w29994. [33] Huynh T D, Xia Y. Climate change news risk and corporate bond returns[J]. Journal of Financial and Quantitative Analysis, 2021, 56(6): 1985-2009. [34] 陈国进, 丁赛杰, 赵向琴, 等. 中国绿色金融政策、融资成本与企业绿色转型——基于央行担保品政策视角 [J]. 金融 研究, 2021(12): 75-95. Chen G J, Ding S J, Zhao X Q, et al. China’s green finance policy, financing costs and firms’ green transition: A central bank collateral framework perspective[J]. Journal of Financial Research, 2021(12): 75-95. [35] 高昊宇, 温慧愉. 生态法治对债券融资成本的影响——基于我国环保法庭设立的准自然实验 [J]. 金融研究, 2021(12): 133-151. Gao H Y, Wen H Y. The Impact of environmental rule of law on bond financing cost: Evidence from environmental courts in China[J]. Journal of Financial Research, 2021(12): 133-151. [36] Berg F, Koelbel J F, Rigobon R. Aggregate confusion: The divergence of ESG ratings[J]. Review of Finance, 2022, 26(6): 1315-1344. [37] 陈胜蓝, 刘晓玲. 经济政策不确定性与公司商业信用供给 [J]. 金融研究, 2018(5): 172-190. Chen S L, Liu X L. Economic policy uncertainty and corporate trade credit extension[J]. Journal of Financial Research, 2018(5): 172-190. [38] Baker S R, Bloom N, Davis S J. Measuring economic policy uncertainty[J]. The Quarterly Journal of Economics, 2016, 131(4): 1593-1636. [39] Arbatli E C, Davis S J, Ito A, et al. Policy uncertainty in Japan[R]. National Bureau of Economic Research, 2017. doi: 10.3386/w23411. [40] Caldara D, Iacoviello M, Molligo P, et al. The economic effects of trade policy uncertainty[J]. Journal of Monetary Economics, 2020, 109: 38-59. [41] Huang Y, Luk P. Measuring economic policy uncertainty in China[J]. China Economic Review, 2020, 59: 101367. [42] Ma Y, Liu Z, Ma D, et al. A news-based climate policy uncertainty index for China[J]. Scientific Data, 2023, 10: 881. [43] Guo K, Li Y, Zhang Y, et al. How are climate risk shocks connected to agricultural markets?[J]. Journal of Commodity Markets, 2023, 32: 100367. [44] Ma D, Zhang Y, Ji Q, et al. Heterogeneous impacts of climate change news on China’s financial markets[J]. International Review of Financial Analysis, 2024, 91: 103007. [45] Francis B B, Hasan I, Zhu Y. Political uncertainty and bank loan contracting[J]. Journal of Empirical Finance, 2014, 29: 281-286. [46] Bali T G, Brown S J, Tang Y. Is economic uncertainty priced in the cross-section of stock returns?[J]. Journal of Financial Economics, 2017, 126(3): 471-489. [47] Liu J, Stambaugh R F, Yuan Y. Size and value in China[J]. Journal of Financial Economics, 2019, 134(1): 48-69. [48] 吴育辉, 田亚男, 陈韫妍, 等. 绿色债券发行的溢出效应、作用机理及绩效研究 [J]. 管理世界, 2022, 38(6): 176-193. Wu Y H, Tian Y N, Chen Y Y, et al. The spillover effect, mechanism and performance of green bond issuance[J]. Management World, 2022, 38(6): 176-193. [49] Campbell J Y. Some lessons from the yield curve[J]. Journal of Economic Perspectives, 1995, 9(3): 129-152. [50] 李勇, 张铭志, 张钰. 中国公司债超额收益的影响因素研究——基于多因子模型的实证分析 [J]. 经济学 (季刊), 2022, 22(3): 867-888. Li Y, Zhang M Z, Zhang Y. Factors of excess return of corporate bonds in China — An empirical analysis based on multi-factor model[J]. China Economic Quarterly, 2022, 22(3): 867-888. [51] 田利辉, 王可第. 社会责任信息披露的 "掩饰效应" 和上市公司崩盘风险——来自中国股票市场的 DID-PSM 分 析 [J]. 管理世界, 2017(11): 146-157. Tian L H, Wang K D. The cover-up effect of corporate social responsibility and public company crash risk — DID-PSM analysis from the Chinese stock market[J]. Management World, 2017(11): 146-157. [52] 王朝阳, 王振霞. 涨跌停、融资融券与股价波动率——基于 AH 股的比较研究 [J]. 经济研究, 2017, 52(4): 151-165. Wang C Y, Wang Z X. Price limit, margin trading, and stock price volatility: A comparative study between A-shares and H-shares[J]. Economic Research Journal, 2017, 52(4): 151-165. [53] Bian J, He Z, Shue K, et al. Leverage-induced fire sales and stock market crashes[R]. National Bureau of Economic Research, 2018. doi: 10.3386/w25040. [54] 刘若鸿, 黄玖立. 地方产业政策与债券融资成本 [J]. 中国工业经济, 2023(6): 118-136. Liu R H, Huang J L. Local industrial policy and corporate financing cost[J]. China Industrial Economics, 2023(6): 118-136. [55] 蔡海静, 汪祥耀, 谭超. 绿色信贷政策、企业新增银行借款与环保效应 [J]. 会计研究, 2019(3): 88-95. Cai H J, Wang X Y, Tan C. Green credit policy, incremental bank loans and environmental protection effect[J]. Accounting Research, 2019(3): 88-95.

Funding

National Natural Science Foundation of China (72348003, 72203016);China Postdoctoral Science Foundation (2022M710323)
PDF(446 KB)

901

Accesses

0

Citation

Detail

Sections
Recommended

/