The impact of climate change on credit cycles: Evidence from China's bond market

This study examines the long-term impacts of climate change on credit spreads using a sample of A-share listed companies that issued corporate bonds between 2014 and 2020. The results indicate that the greater the climate change risk a company faces, the greater its bonds' credit spread; the secondary bond market perceives the potential harm caused by climate change. This conclusion remains valid after endogeneity treatment and robustness tests. Furthermore, mechanism testing reveals that climate change affects bond credit spreads by increasing the probability of corporate bankruptcy, profit volatility, and negative investor sentiment. The heterogeneity test considers three aspects, namely, individual enterprises' internal characteristics, creditor protection measures, and regional green finance levels. Finally, this study introduces the impact of economic cycles to test the conclusions at the macro level and closely follow the topic. Thus, we provide new evidence and perspectives for exploring the impact of climate risk on the bond market and important policy implications for green finance and the healthy development of China's bond market.