Biodiversity Risk, Firm Performance, and Market Mispricing

52 Pages Posted: 15 Apr 2024 Last revised: 15 Nov 2024

See all articles by Yujun Huang

Yujun Huang

Université Paris Dauphine - PSL Research University; University of Paris 8 Vincennes-Saint Denis

Anna Créti

Université Paris Dauphine

Binghan Jiang

Université Paris-Dauphine, PSL Research University

María Eugenia Sanin

Université Paris Saclay

Date Written: February 1, 2024

Abstract

Combining new data on biodiversity-capacity and biodiversity-footprint with firm fundamentals, we conduct a causal analysis of the impact of biodiversity physical risk on firms' profitability and stock returns. With this purpose, we build a biodiversity index for 35 countries and use a time series model to capture its variation over time. We show that such time trend estimation can be aggregated as risk exposure and can significantly forecast establishment-level profitability. We then show that the market underprices biodiversity physical risk, which is due to the insufficient analysis of related information and its impact on the firm-level future cash flow. We also document disparities of risk exposure across firms and sectors, and our results are consistent with previous findings in terms of climate physical risk.

Keywords: Biodiversity, physical risk, profitability, stock returns, market effeciency

JEL Classification: G1, G12, G14, Q57

Suggested Citation

Huang, Yujun and Créti, Anna and Jiang, Binghan and Sanin, Maria Eugenia, Biodiversity Risk, Firm Performance, and Market Mispricing (February 1, 2024). Available at SSRN: https://ssrn.com/abstract=4765039 or http://dx.doi.org/10.2139/ssrn.4765039

Yujun Huang (Contact Author)

Université Paris Dauphine - PSL Research University ( email )

Place du Maréchal de Lattre de Tassigny
Paris cedex 16, 75775
France

University of Paris 8 Vincennes-Saint Denis ( email )

2 Rue de la Liberté
Saint-Denis, 92130
France

Anna Créti

Université Paris Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

Binghan Jiang

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Lattre de Tassigny
Paris, 75016
France

Maria Eugenia Sanin

Université Paris Saclay

France

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