Extreme climate risks and corporate bond yield spreads: evidence from China

ABSTRACTThis paper examines the relationship between extreme climate risks and offering yield spreads using a comprehensive dataset of Chinese corporate bonds issued by publicly listed firms from 2014 to 2020. We find that extreme climate risks are positively associated with firms’ offering yield spreads. This effect is more pronounced for bonds with long maturity, firms in climate-sensitive industries, and firms with lower ROE. Two economic channels are identified to explain the effect of climate risks on offering yield spreads: default risk and investor sentiment. Our results remain robust to a series of robustness tests.KEYWORDS: extreme climate risksoffering yield spreadscorporate bondsdefault riskinvestor sentiment AcknowledgmentsWe are grateful to the editor and the anonymous reviewers for their valuable comments and suggestions that helped improve our paper significantly. This paper is supported by the National Natural Science Foundation of China (Nos.72103017,T2293771) and Humanities and Social Sciences Fund of the Ministry of Education (No.21YJA790028). Any errors are our own.Disclosure statementNo potential conflict of interest was reported by the authors.Data availability statementThis paper collects data from trustworthy platforms (i.e. CSMAR, Wind, National Meteorological Science Data Sharing Service Platform). The data are not publicly available due to privacy or ethical restrictions.Additional informationFundingThis work was supported by the National Natural Science Foundation of China [72103017, T2293771]; Humanities and Social Sciences Fund of the Ministry of Education [21YJA790028].