Research on effect of extreme climates penalties local government debt pricing: Evidence from urban investment bonds in China

Xing Li, Yanli Zhou, Dixing Zhu and Xiangyu Ge

The North American Journal of Economics and Finance, 2024, vol. 73, issue C

Abstract: The frequent occurrence of extreme climates has brought challenges to the pricing of local government debt. Based on the data of extreme climates and urban investment bonds from 316 cities in China during 2011–2021, this paper empirically examines the effect of extreme climates on local government debt pricing, and analyzes its suppressing mechanism, mediating mechanism and heterogeneity. The empirical results show that: (i) Both extreme high temperature and extreme precipitation penalize the local government debt pricing, however the extreme low temperature is not reflected in local government debt pricing. (ii) The pricing penalty of extreme low temperature on local government debt is suppressed by administrative intervention and local relationship underwriting. (iii) Improving the quality of the ecological environment and increasing the density of the meteorological monitoring station network can reduce the pricing penalties of extreme precipitation and extreme high temperature on local government debt, respectively. (iv) The pricing penalties of extreme climates are reflected in short-term to medium-term local government debt, and non-ESG local government debt, as well as local government debt issued by non-climate-resilient pilot cities. The pricing penalties of extreme climates on local government debt pricing exhibit heterogeneity, depending on the fund usage of debt. This research is of significance for coping with the increase in local government financing costs due to climate risks and developing flexible and differentiated climate-resilient local government debt pricing strategies.

Keywords: Extreme climate; Local government debt; Urban investment bonds; Pricing penalties (search for similar items in EconPapers)
JEL-codes: G12 H63 H70 Q54 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:73:y:2024:i:c:s1062940824001207

DOI: 10.1016/j.najef.2024.102195

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