How do firms respond to biodiversity risk? Evidence from green M&As in China

Drawing on Chinese A-share listed firms from 2012 to 2023, this article investigates whether biodiversity risk is associated with corporate green M&A decisions. We construct a firm-year measure of biodiversity risk reflected in annual reports using an LLM-assisted textual approach and identify green M&As from transaction disclosures. Baseline Probit estimates reveal a positive and statistically significant association between biodiversity risk and the likelihood of green M&A. The result remains robust across a wide range of additional tests, including propensity score matching and instrumental-variable analysis. Further analyses identify financing constraints and corporate reputation as two potential channels underlying this relationship. Consistent with differences in risk materiality, firms’ incentives to respond, and their capacity to act, the positive association is stronger among firms with higher supplier concentration, greater green investor involvement, and larger boards, respectively. By contrast, biodiversity risk is not significantly associated with non-green M&A or subsequent green patenting, indicating that the documented relationship is specific to green acquisition decisions in our setting.