 The impact of air pollution on the cost of debt financing: Evidence from the bond marketJianhua Tan, Kam C. Chan and Yining Chen Business Strategy and the Environment, 2022, vol. 31, issue 1, 464-482 Abstract: This study investigates whether bond markets reflect firms' exposure to air pollution through an increased cost of debt financing; and, if so, whether firms can mitigate this air pollution penalty via effective governance and active monitoring. Using 1067 bonds issued by Chinese firms, we document a positive association between air pollution and the cost of debt financing, and this association is robust and economically meaningful. Specifically, with a one standard deviation increase in air pollution severity, a firm's bond yield spread increases approximately 16% relative to an average bond. Additional analysis suggests that credit risk and financial uncertainty are the transmission channels. Our results also confirm that strengthened corporate governance, active board and external monitoring, and a stabilized economic environment further enhance the impact of air pollution on a firm's cost of debt. Overall, air pollution has a material change in a firm's business strategy in using debt. Date: 2022 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:bstrat:v:31:y:2022:i:1:p:464-482 Ordering information: This journal article can be ordered from Access Statistics for this article Business Strategy and the Environment is currently edited by Richard Welford More articles in Business Strategy and the Environment from Wiley Blackwell |
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