Does Biodiversity Risk Matter to Capital Markets? New Evidence from China

41 Pages Posted: 3 Jan 2025 Last revised: 16 Mar 2025

See all articles by Zhang-HangJian Chen

Zhang-HangJian Chen

Anhui University

Jeroen Derwall

Maastricht University; Maastricht University - Department of Finance; Utrecht University - School of Economics

Xiang Gao

Shanghai Business School

Kees Koedijk

Utrecht University

Date Written: December 18, 2024

Abstract

This paper presents macro-, meso-, and firm-level measures of biodiversity risk specific to the Chinese capital market, and investigates how biodiversity risk relates to individual stock returns. Our measures indicate that biodiversity risk in China varies over time and across industries, and that aggregate attention to biodiversity issues has risen sharply over the past two decades. We then provide new evidence that corporate biodiversity risk exposure negatively relates to stock returns in the cross-section, significantly more so when aggregate attention to biodiversity issues rises and when industry-level biodiversity risk increases. Furthermore, we obtain some evidence that weekly returns on a portfolio long (short) on stocks with low (high) biodiversity risk positively covary with contemporaneous shocks to aggregate biodiversity attention, although negatively with lagged shocks to attention. In addition, institutional ownership is lower when firms appear more vulnerable to biodiversity risk, even more so in years of rising attention to biodiversity.

Keywords: Biodiversity risk, stock returns, official news, investor perception, internal governance, external monitoring JEL codes: G10, G11, G12, Q5, Q53, Q57

Suggested Citation

Chen, Zhang-HangJian and Derwall, Jeroen and Derwall, Jeroen and Gao, Xiang and Koedijk, Kees, Does Biodiversity Risk Matter to Capital Markets? New Evidence from China (December 18, 2024). Available at SSRN: https://ssrn.com/abstract=5067186 or http://dx.doi.org/10.2139/ssrn.5067186

Zhang-HangJian Chen

Anhui University ( email )

China

Jeroen Derwall (Contact Author)

Maastricht University ( email )

FEBA
Tongersestraat 53
Maastricht, Limburg 6200MD
Netherlands

HOME PAGE: http://www.jeroenderwall.nl

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

HOME PAGE: http://www.fdewb.unimaas.nl/finance/?page=member&id=175

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

Xiang Gao

Shanghai Business School ( email )

Shanghai Business School
2271 West Zhongshan Road
Shanghai, 200235
China

Kees Koedijk

Utrecht University ( email )

Vredenburg 138
Utrecht, 3511 BG
Netherlands
+31655186755 (Phone)

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