IDEAS home Printed from https://ideas.repec.org/a/bla/bstrat/v35y2026i2p2728-2754.html

When Nature Hits the Bottom Line: Transition Biodiversity Risk and Corporate Creditworthiness

Author

Listed:
  • Nam Thanh Vu
  • Duc Hong Vo

Abstract

This paper investigates the effect of biodiversity risk on corporate credit risk. Using textual‐based measures of biodiversity risk, we find that firms exposed to biodiversity transition risk exhibit shorter distances‐to‐default, implying greater credit risk, compared to non‐exposed firms. In contrast, we find no significant relationship between physical biodiversity risk and distance‐to‐default. We attribute the observed link between transition risk and credit risk to a risk‐perception channel: Transition risk raises investors' perception of firm exposure, which depresses market valuations and weakens firms' capacity to meet debt obligations. To mitigate transition biodiversity risk, we propose two adapting strategies: (i) increasing cash holdings and (ii) promoting product innovation. Overall, our findings indicate that transition biodiversity risk lowers firms' creditworthiness, but strategic adaptation can enhance firms' resilience to its unfavourable effects.

Suggested Citation

  • Nam Thanh Vu & Duc Hong Vo, 2026. "When Nature Hits the Bottom Line: Transition Biodiversity Risk and Corporate Creditworthiness," Business Strategy and the Environment, Wiley Blackwell, vol. 35(2), pages 2728-2754, February.
    • Handle: RePEc:bla:bstrat:v:35:y:2026:i:2:p:2728-2754
    DOI: 10.1002/bse.70279
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/bse.70279
    Download Restriction: no
    File URL: https://libkey.io/10.1002/bse.70279?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Ahsan Habib & Mabel D' Costa & Hedy Jiaying Huang & Md. Borhan Uddin Bhuiyan & Li Sun, 2020. "Determinants and consequences of financial distress: review of the empirical literature," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(S1), pages 1023-1075, April.
    2. Brogaard, Jonathan & Li, Dan & Xia, Ying, 2017. "Stock liquidity and default risk," Journal of Financial Economics, Elsevier, vol. 124(3), pages 486-502.
    3. Gerard Hoberg & Vojislav Maksimovic, 2022. "Product Life Cycles in Corporate Finance," The Review of Financial Studies, Society for Financial Studies, vol. 35(9), pages 4249-4299.
    4. Du, Jiangze & Liu, Fule & Hsu, Yuan-Teng & Bui, Dien Giau, 2025. "How do executives respond to biodiversity risk? Evidence from opportunistic stock selling," Pacific-Basin Finance Journal, Elsevier, vol. 91(C).
    5. Thang Ngoc Bach & Khanh Hoang & Thanh Le, 2025. "Biodiversity risk and firm performance: Evidence from US firms," Business Strategy and the Environment, Wiley Blackwell, vol. 34(1), pages 1113-1132, January.
    6. García, C. José & Herrero, Begoña, 2021. "Female directors, capital structure, and financial distress," Journal of Business Research, Elsevier, vol. 136(C), pages 592-601.
    7. Raphaela Roeder & Sebastian Utz, 2025. "From Diversity to Confusion? The Challenge of Biodiversity Footprint Quantification," Business Strategy and the Environment, Wiley Blackwell, vol. 34(5), pages 5887-5900, July.
    8. Pi, Tianlei & Jiao, Linke & Zhou, Yuhan & Shi, Jin, 2025. "Can biodiversity risk improve firm ESG performance? Empirical evidence from China," Finance Research Letters, Elsevier, vol. 76(C).
    9. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    10. Todd Mitton, 2024. "Economic Significance in Corporate Finance," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 13(1), pages 38-79.
    11. M. Tudela & G. Young, 2005. "A Merton-Model Approach To Assessing The Default Risk Of Uk Public Companies," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 8(06), pages 737-761.
    12. Todd Kravet & Volkan Muslu, 2013. "Textual risk disclosures and investors’ risk perceptions," Review of Accounting Studies, Springer, vol. 18(4), pages 1088-1122, December.
    13. Filipa Da Silva Fernandes & Fotios I. Papadimitriou, 2025. "The effect of climate risk on firm cash holdings: evidence from the euro area," The European Journal of Finance, Taylor & Francis Journals, vol. 31(9), pages 1168-1196, June.
    14. He, Feng & Duan, Lin & Lucey, Brian & Hao, Jing, 2025. "Biodiversity risk or climate risk? Which factor affects corporate ESG rating divergence," International Review of Financial Analysis, Elsevier, vol. 104(PA).
    15. Hernandez Tinoco, Mario & Wilson, Nick, 2013. "Financial distress and bankruptcy prediction among listed companies using accounting, market and macroeconomic variables," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 394-419.
    16. G. Andrew Karolyi & John Tobin‐de la Puente, 2023. "Biodiversity finance: A call for research into financing nature," Financial Management, Financial Management Association International, vol. 52(2), pages 231-251, June.
    17. Wang, Yueyang, 2025. "The silent cost of biodiversity loss: Unveiling its impact on institutional ownership," International Review of Financial Analysis, Elsevier, vol. 103(C).
    18. Zhou, Chengchen & Chen, Yajie & Ji, Qiang & Zhang, Dayong, 2025. "Does public attention to biodiversity matter to stock markets?," International Review of Financial Analysis, Elsevier, vol. 98(C).
    19. Adamolekun, Gbenga, 2024. "Firm biodiversity risk, climate vulnerabilities, and bankruptcy risk," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 97(C).
    20. Tobias Steindl & Stephan Küster & Sven Hartlieb, 2025. "Pricing firms’ biodiversity risk exposure: Empirical evidence from audit fees," Journal of Industrial Ecology, Yale University, vol. 29(3), pages 828-845, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Li, Jun & Jin, Yihang & Zhou, Peng, 2025. "Do banks price firms' biodiversity risk? Evidence from the Kunming declaration," International Review of Financial Analysis, Elsevier, vol. 106(C).
    2. Mehmet Celiktas & Mine Ugurlu & Neslihan Yilmaz, 2025. "Corporate governance, blockholders, and financial distress: Global evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 65(2), pages 1347-1398, June.
    3. Efstathios Magerakis & Ahsan Habib, 2026. "Biodiversity Risk and Working Capital Management," Business Strategy and the Environment, Wiley Blackwell, vol. 35(3), pages 3445-3467, March.
    4. Jia Liao & Yun Zhan & Yu Yuan, 2024. "Top management team stability and corporate default risk: The moderating effects of industry competition and strategic deviance," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(2), pages 809-827, March.
    5. Almaghrabi, Khadija S. & Ben-Amar, Walid & Kong, Ziyu, 2025. "Biodiversity risk and firms’ access to trade credit," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 105(C).
    6. Zhang, Min & Chen, Guorong & Deng, Jing, 2025. "Does biodiversity attention affect risk spillover in the AFHF sectors?—Evidence from Chinese stock markets," Finance Research Letters, Elsevier, vol. 82(C).
    7. Mirza, Nawazish & Rahat, Birjees & Naqvi, Bushra & Rizvi, Syed Kumail Abbas, 2023. "Impact of Covid-19 on corporate solvency and possible policy responses in the EU," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 181-190.
    8. Tran, Thanh Tat & Hoang, Khanh & Ngo, Thanh & Nguyen, Thang Xuan & Tran, Hien Thi Thu, 2025. "How does biodiversity risk exposure affect corporate regulatory intensity?," Finance Research Letters, Elsevier, vol. 86(PB).
    9. Pi, Tianlei & Jiao, Linke & Zhou, Yuhan & Shi, Jin, 2026. "Biodiversity risk and corporate greenwashing: Evidence from China," Research in International Business and Finance, Elsevier, vol. 83(C).
    10. Lang, Qiaoqi & Li, Chenyu & Wen, Lixuan & Wu, Hanlin, 2025. "Biodiversity risk and agricultural futures markets," International Review of Financial Analysis, Elsevier, vol. 107(C).
    11. Brian M. Lucey & Samuel Vigne, 2026. "Puzzles, Tensions, and the Research Agenda for Biodiversity Finance," The Financial Review, Eastern Finance Association, vol. 61(2), pages 353-358, May.
    12. Cosma, Simona & Cosma, Stefano & Pennetta, Daniela & Rimo, Giuseppe, 2025. "Does biodiversity matter for firm value?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 105(C).
    13. Khan, Nasir & Lucey, Brian, 2026. "Biodiversity risk, corporate governance, and firm performance: empirical evidence from China," Finance Research Letters, Elsevier, vol. 87(C).
    14. Dinh, Dung V. & Powell, Robert J. & Vo, Duc H., 2021. "Forecasting corporate financial distress in the Southeast Asian countries: A market-based approach," Journal of Asian Economics, Elsevier, vol. 74(C).
    15. Ashton De Silva & Huu Nhan Duong & My Nguyen & Yen Ngoc Nguyen, 2023. "Bank risk in uncertain times: Do credit rationing and revenue diversification matter?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(7-8), pages 1240-1273, July.
    16. Ahsan Habib & Mabel D' Costa & Hedy Jiaying Huang & Md. Borhan Uddin Bhuiyan & Li Sun, 2020. "Determinants and consequences of financial distress: review of the empirical literature," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(S1), pages 1023-1075, April.
    17. Nguyen, Justin Hung & Qiu, Buhui, 2022. "Right-to-Work laws and corporate innovation," Journal of Corporate Finance, Elsevier, vol. 76(C).
    18. Yin, Libo & Zhu, Xiaoye & Li, Jingtian, 2025. "Does exposure to biodiversity risk drive firms’ digital transformation?," Finance Research Letters, Elsevier, vol. 82(C).
    19. Hui Li & Ting Sun & Jinquan Zhang, 2024. "Prediction of corporate financial distress based on corporate social responsibility: New evidence from DANP, VWP and MEOWA weights methodologies," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(5), pages 4537-4565, December.
    20. Maclachlan, Iain C, 2007. "An empirical study of corporate bond pricing with unobserved capital structure dynamics," MPRA Paper 28416, University Library of Munich, Germany.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:bstrat:v:35:y:2026:i:2:p:2728-2754. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1099-0836 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.