Confronting biodiversity risk: Its role in shaping corporate external financing choice

Zhou, Yang, Yu, Nizhou, Lucey, Brian M. and Wang, Yueyang 2026. Confronting biodiversity risk: Its role in shaping corporate external financing choice. Business Strategy and the Environment 10.1002/bse.71590

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Abstract

This paper investigates how biodiversity risk shapes corporate financing decisions. We propose a Financing Hierarchy Distortion framework, arguing that biodiversity risk amplifies information asymmetry and legitimacy costs, thereby pushing firms toward debt-heavy adjustments. To empirically test this, we introduce a novel firm-level Biodiversity Risk (Brisk) measure derived from textual analysis of corporate disclosures and link it to objective ecological data via Biological Diversity Endowment (BDE). Using Chinese A-share listed firms from 2009 to 2023 and excluding those in financial and real estate sectors and with ST designations, we find that higher biodiversity risk increases reliance on both formal and informal debt, particularly short-term debt. These findings are robust to quasi-causal identifications using difference-in-differences and instrumental variable strategies. Mechanism and heterogeneity analyses further corroborate the proposed framework and show that this distortion is more pronounced among firms in biodiversity-dependent industries and those facing stronger institutional pressures. These adjustments, however, impose tangible economic costs, raising debt financing costs and depressing returns on assets. Overall, our findings highlight the unintended financial consequences of biodiversity risk, with policy implications for biodiversity disclosure standards, biodiversity-linked financing instruments and the development of alternative credit channels to strengthen firm resilience under escalating ecological pressure.

Item Type:	Article
Date Type:	Published Online
Status:	Published
Schools:	Schools > Business (Including Economics)
Publisher:	Wiley
ISSN:	0964-4733
Date of First Compliant Deposit:	12 October 2026
Date of Acceptance:	7 September 2026
Last Modified:	12 Oct 2026 14:45
URI:	https://orca.cardiff.ac.uk/id/eprint/190169

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