Biodiversity Risk and the Cost of Equity Capital: Implications for Sustainable Development

ABSTRACT This study explores the impact of corporate biodiversity risk on financing costs using data from 4932 Chinese listed firms from 2000 to 2023. Our results show that biodiversity risk significantly increases the cost of equity capital. Government attention raises the financing costs for high‐risk companies, while individual investors' attention reduces the cost of financing. Institutional investors and analysts show no significant effect. We enhance our identification by using a difference‐in‐difference estimation with the 2017 Green Shield Action. Heterogeneity tests find stronger effects among firms with low institutional investor ownership, weaker green profiles, and in less developed regions. We highlight the vital role of biodiversity risk management on corporate financing decisions and sustainable development.