Biodiversity Risk and Financial Constraints

The accelerating loss of global biodiversity has escalated into a systemic risk. It poses material financial risks to corporations through both physical supply chain disruptions and transition pressures from evolving regulations and stakeholder expectations. This study conducts micro-level research, which empirically investigates the effect of corporate exposure to biodiversity risks on firms financial constraints. Through a textual analysis of the annual reports of Chinese A-share firms from 2010 to 2023, we construct a firm-specific measure of biodiversity risk exposure. Our findings reveal that heightened biodiversity risks significantly increase financial constraints, as measured by the SA index, thereby restricting capital access. The results withstand a series of robustness checks after considering the potential reverse causality issue. By conceptualizing biodiversity risks as a determinant of financing frictions from an institutional economics standpoint, this study broadens the boundary of factors influencing corporate financing. At the same time, it offers practical implications for regulators to mandate enhanced biodiversity disclosure and for corporate managers to integrate ecological safeguards into strategic risk management.