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Air pollution and issuance credit spread of municipal investment bond

Author

Listed:
  • Zhang, Yongji
  • Cao, Liyuan
  • Lan, Minghui
  • Su, Zhi
  • Wang, Ke

Abstract

This paper explores the impact of city-level air pollution on the financing costs of local and regional governments (LRGs) in China. The empirical results demonstrate that cities with poor air quality face higher credit spreads on bonds issued by local financing platforms (LFPs), underscoring the critical role of air quality in determining LRGs financing costs. Air pollution negatively affects the credit rating of municipal investment bonds and increases fiscal pressure on LRGs. However, when LRGs invest more in environmental protection, reduce reliance on tax revenue, enforce stricter environmental regulations, and implement auditing policy for natural resources management, the adverse effect of air pollution on bond credit spreads are mitigated. This study enriches the research on whether and how air pollution affects bond issuance pricing and provides insights into strategies for reducing LFPs financing costs and addressing LRGs debt crises.

Suggested Citation

  • Zhang, Yongji & Cao, Liyuan & Lan, Minghui & Su, Zhi & Wang, Ke, 2024. "Air pollution and issuance credit spread of municipal investment bond," Energy Economics, Elsevier, vol. 139(C).
  • Handle: RePEc:eee:eneeco:v:139:y:2024:i:c:s0140988324005747
    DOI: 10.1016/j.eneco.2024.107866
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    More about this item

    Keywords

    Air pollution; Credit spread; Municipal investment bond; Environmental regulation;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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