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Environmental regulations and bond pricing: A quasi-natural experiment based on the new environmental protection law

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  • Wang, Qian
  • Wang, Li
  • Zhang, Yuan
  • Peng, Hongfeng

Abstract

We extend the existing body of research in law and finance by exploring it through the lens of environmental protection legislation. Using the implementation of the new Environmental Protection Law as a quasi-natural experiment, we find that the credit spread of bonds issued by heavily polluting enterprises in both the primary and secondary bond markets can be significantly enhanced by the implementation of the new Environmental Protection Law. After decomposing bond credit spreads into liquidity spreads and default spreads, we further find that the implementation of the new Environmental Protection Law significantly increases bond default spreads, with no significant impact on liquidity spreads. And the increased impact of the new Environmental Protection Law on bond credit spreads is primarily driven by penalty effects, investor sentiment effects, and resource effects. Additionally, the effect on bond credit spreads diminishes as customer concentration decreases, social awareness increases, and companies engage in green innovation. It is also more significant for mature enterprises and long-term bonds. This paper has a certain reference significance for evaluating the economic effects of the new Environmental Protection Law, guiding further targeted policy efforts, and achieving economic green transformation.

Suggested Citation

  • Wang, Qian & Wang, Li & Zhang, Yuan & Peng, Hongfeng, 2025. "Environmental regulations and bond pricing: A quasi-natural experiment based on the new environmental protection law," Research in International Business and Finance, Elsevier, vol. 77(PA).
    • Handle: RePEc:eee:riibaf:v:77:y:2025:i:pa:s0275531925001771
    DOI: 10.1016/j.ribaf.2025.102921
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