The Impact of Air Pollution on Cost of Debt: Evidence from Corporate Bond Markets

52 Pages Posted: 22 Nov 2022

See all articles by Xiaolu Hu

Xiaolu Hu

RMIT University - School of Economics, Finance and Marketing

Angel Zhong

RMIT University - School of Economics, Finance and Marketing

Youdan Cao

CITIC Securities Co., Ltd

Date Written: May 1, 2022

Abstract

This study explores the influence of air pollution on the corporate bond market in China. An air pollution premium is documented, whereby bonds issued in more polluted areas are associated with higher offering yields at issue in the primary market and higher yield spreads in the secondary market. The statistically and economically significant air pollution premium is robust to a battery of sensitivity checks. The air pollution premium is associated with rising investor attention to climate risk in financial markets.

Keywords: climate change, corporate bond market, air pollution, bond yield spread, cost of debt

JEL Classification: G13, M41, G3

Suggested Citation

Hu, Xiaolu and Zhong, Angel and Cao, Youdan, The Impact of Air Pollution on Cost of Debt: Evidence from Corporate Bond Markets (May 1, 2022). Available at SSRN: https://ssrn.com/abstract=4280090 or http://dx.doi.org/10.2139/ssrn.4280090

Xiaolu Hu (Contact Author)

RMIT University - School of Economics, Finance and Marketing ( email )

Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

Angel Zhong

RMIT University - School of Economics, Finance and Marketing ( email )

Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

Youdan Cao

CITIC Securities Co., Ltd

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