Biodiversity Risk Premium, Institutional Investor Preference, and Stock Price Crashes

The negative economic consequences of biodiversity loss are of increasing concern to governments. This study examines the impact of biodiversity risk on stock price crashes in the Chinese market from the perspective of institutional investors. We construct a biodiversity thesaurus using the China National Knowledge Infrastructure database and develop an indicator to measure companies’ biodiversity risk. Empirical results show that higher biodiversity risk is associated with higher stock price collapse risk, supported by endogeneity and robustness tests. Institutional investors perceive a premium for such risk and increase their holdings, but excessive holdings exacerbate the risk of collapse. Funds and insurance are more sensitive to biodiversity risk and prefer higher-risk-exposure firms. Heterogeneity analysis reveals greater impacts on non-state-owned, heavily polluting firms in the eastern region and on high-transparency firms.