Air pollution and issuance credit spread of municipal investment bond

Yongji Zhang, Liyuan Cao, Minghui Lan, Zhi Su and Ke Wang

Energy Economics, 2024, vol. 139, issue C

Abstract: This paper explores the impact of city-level air pollution on the financing costs of local and regional governments (LRGs) in China. The empirical results demonstrate that cities with poor air quality face higher credit spreads on bonds issued by local financing platforms (LFPs), underscoring the critical role of air quality in determining LRGs financing costs. Air pollution negatively affects the credit rating of municipal investment bonds and increases fiscal pressure on LRGs. However, when LRGs invest more in environmental protection, reduce reliance on tax revenue, enforce stricter environmental regulations, and implement auditing policy for natural resources management, the adverse effect of air pollution on bond credit spreads are mitigated. This study enriches the research on whether and how air pollution affects bond issuance pricing and provides insights into strategies for reducing LFPs financing costs and addressing LRGs debt crises.

Keywords: Air pollution; Credit spread; Municipal investment bond; Environmental regulation (search for similar items in EconPapers)
JEL-codes: E44 G12 M21 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:139:y:2024:i:c:s0140988324005747

DOI: 10.1016/j.eneco.2024.107866

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