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

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.