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Corporate bond pricing under climate policy uncertainty: Evidence from firm-level exposure

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  • Zhao, Yikai
  • Nagayasu, Jun
  • Tian, Jingyi
  • Geng, Xinyi

Abstract

This paper examines how firm-level exposure to climate policy uncertainty (FCPUE) affects corporate bond credit spreads in China between 2008 and 2022 We construct a novel measure of FCPUE using multiple corporate disclosure texts and large language models (LLMs) and validate its effectiveness. We find that the rise in FCPUE significantly widens firms’ credit spreads by increasing the risk of financial distress and reducing secondary-market liquidity. Additionally, the magnitude of this effect depends on the clarity of local regulatory signals. Although disclosure of environmental, social, and governance (ESG) information moderates the impact of FCPUE on credit spreads, divergence in ESG ratings amplifies it, particularly when disagreement arises between domestic rating providers. Finally, heterogeneity analyzes reveal that the FCPUE’s widening effect is more pronounced for traditional bonds, short- to medium-term maturities, non-state-owned enterprises, and firms with geographically dispersed supply chains.

Suggested Citation

  • Zhao, Yikai & Nagayasu, Jun & Tian, Jingyi & Geng, Xinyi, 2026. "Corporate bond pricing under climate policy uncertainty: Evidence from firm-level exposure," Structural Change and Economic Dynamics, Elsevier, vol. 79(C), pages 459-481.
    • Handle: RePEc:eee:streco:v:79:y:2026:i:c:p:459-481
    DOI: 10.1016/j.strueco.2026.06.003
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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