The impact of biodiversity risks on corporate default rates: Evidence from China

Biodiversity risks directly affect ecological dependencies, regulatory compliance, and societal trust, thereby representing major challenges for firms’ long-term survival and sustainable competitiveness. Using 2011–2023 data on A-share firms listed on the Shanghai and Shenzhen Stock Exchanges in China, this study explores the impact of biodiversity risk on corporate default rates and the underlying transmission mechanisms. The findings indicate that biodiversity risk significantly increase corporate default rates. This conclusion holds true after a series of robustness and endogeneity tests. The mechanism analysis reveals that biodiversity risk influence corporate default rates through cost escalation, financing constraints, and supply chain disruption. Furthermore, an extended analysis confirms that this effect exhibits both industry heterogeneity and heterogeneity transmission channels, and internal guardians and external monitors mitigate the influence of biodiversity risks on corporate default rates. This study enhances the theoretical framework on the transmission of ecological externalities to corporate financial risk, providing crucial theoretical support for firms to optimize their risk management strategies as well as for policymakers to design effective incentive mechanisms. The presented findings also suggest a sustainable and efficient new path for mobilizing enterprises’ forces to address biodiversity loss.