Extreme Rainfall and Municipal Financing: Risk Pricing and Adaptive Mitigation by Sponge Cities

Li Li, Xiangyang Li, Steven Ongena and Yabin Wang
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Li Li: Peking University, Guanghua School of Management, Students
Xiangyang Li: Nankai University
Yabin Wang: Norwegian University of Science and Technology

No 25-25, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: How do extreme weather and climate adaptation affect local financing cost? To answer this question, we examine the impact on Chinese municipal corporate bonds of both extreme rainfall and the Sponge City Pilot program. A one standard deviation increase in rainfall raises bond issuance spreads by 16 bps on average, but Sponge Cities manage to more than offset that. Further analysis demonstrates that the savings from reduced borrowing costs, coupled with broader economic gains in employment and corporate profits, far outweigh the program's investment costs. These findings underscore the importance of urban resiliency in shielding local finances from climate risks.

Keywords: Extreme rainfall; Municipal corporate bond; Climate adaptation; Climate finance (search for similar items in EconPapers)
JEL-codes: E32 E44 G32 Q54 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2025-03
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2525

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