Green signals in credit pricing: proactive government response to biodiversity risk and credit spreads

This study examines the impact of Proactive Government Response to Biodiversity Risk (PGBR) on the credit spreads of Local Government Financing Vehicle (LGFV) bonds. Based on a textual analysis of government work reports from 2015 to 2023, a PGBR index is constructed. The empirical results demonstrate that PGBR has a significant negative effect on LGFV bond credit spreads, with fiscal constraints and disaster signal weakening mechanisms partially mitigating this impact by reducing the credibility of ecological governance signals. To address potential endogeneity, this study employs the municipal impervious surface area (ISA) and the proportion of nature reserve area (NRR) as instrumental variables and utilizes a 2SLS estimation approach, with results remaining robust. Further analysis reveals that the effect is stronger for short-term bonds and more pronounced in eastern China. Additionally, PGBR significantly promotes regional green technological innovation and ecological governance outcomes, reflecting the multifaceted positive influence of local government ecological governance efforts across financial, technological, and ecological dimensions.