This study aims to examine the causal effect of carbon regulatory risk on corporate bond yield spreads in emerging markets through empirical analysis. Exploiting China's commitment to peak CO2 emissions before 2030 and achieve carbon neutrality before 2060 as an exogenous shock to an unexpected increase in carbon regulatory risk, we perform a difference-in-difference-in-differences (DDD) strategy. We find that exposure to carbon regulatory risk leads to an increase in bond yield spreads for carbon-intensive firms located in regions with stricter regulatory enforcement. This positive relationship is more pronounced for firms with financing constraints, belonging to more competitive industries, and located in regions with a high marketization process. We further identify that higher earnings uncertainty and increased investor attention serve as two mechanisms by which carbon regulatory risk influences the yield spreads of corporate bonds. Moreover, the spread decomposition reveals that the rise in bond yield spreads after an increase in carbon regulatory risk is primarily driven by the rise in default risk rather than the rise in liquidity risk. Overall, our findings highlight the importance of considering carbon regulatory risk exposure in financial markets, especially in developing economies like China.

To address the challenges posed by renewable energy integration in power systems, China is advancing the development of Pumped Hydro Storage (PHS). However, the rapid growth of PHS installations, coupled with strict regulations and a high reliance on capacity compensation, has led to increasing financial burdens on other utilities. One solution is to reallocate the capacity compensation through market-based approaches to implement the “beneficiary-pays” principle. To achieve this goal, an operational policy named ’partial-regulated dispatch’ is proposed in this study. The analysis of this policy encompasses two crucial dimensions: the dispatch mechanism and business models. The dispatch mechanism evaluates PHS’s capacity contribution to grid stability, while the business models focus on enhancing PHS profitability to reduce dependency on capacity compensation while ensuring long-term economic sustainability. Furthermore, the flexibility of PHS is introduced as a criterion for assessing system security contributions, considering both individual unit vibration characteristics and multi-unit commitment strategies. The case study shows that through partial-regulated dispatch, PHS can reduce its reliance on capacity compensation by nearly 50% while ensuring its regulation service via flexibility compensation. This policy effectively balances economic viability with system support capabilities. Moreover, flexibility compensation provides PHS operators with a risk mitigation strategy in the complex power market environment. Under an appropriate operational strategy and policy incentives, the flexibility can be enhanced by nearly 30% in a fully marketized scenario, contributing to both system stability and operational efficiency.

We conducted a nationwide field experiment with 4,800+ Chinese-listed companies, randomly raising ESG concerns to their management teams via high-visibility and high-stakes online platforms. Tracking the full impact-generating process, we find that companies respond to our concerns by providing high-quality answers, publishing ESG reports, and making commitments to investors. Over time, Environmental (E) inquiries boost stock valuations, while Governance (G) concerns prompt skepticism. Productive and opaque firms are more likely to respond, consistent with a signaling model where costly ESG actions signal firm quality under information asymmetry. Overall, ESG actions are likely driven by profit-oriented signaling rather than values-based motives.

The role of institutional investors in the development of Environmental, Social, and Governance (ESG) criteria lacks consensus in the academic community. This study utilizes a quasi-natural experiment involving Chinese mutual funds that have signed the United Nations Principles for Responsible Investment (UNPRI) to investigate whether institutional Investors’ ESG investment commitments can significantly reduce ESG rating disagreement among the companies in their portfolios. We first find that companies held by ESG commitment institutional Investors exhibit less disagreement in ESG rating compared to those held by Non-ESG commitment institutional Investors. we then show that institutional Investor’ ESG investment commitment influence ESG rating disagreement by enhancing the quality of ESG disclosure and attracting external ESG attention. We further discover that institutional investors’ ESG investment commitments significantly mitigates the ESG rating disagreement among domestic ESG rating agencies and firms with a higher level of corporate governance.

Trust can be obtained by firm location (endowed trust) or behaviors (earned trust). We are interested in whether firms located in trusted regions are more likely to protect stakeholders’ benefits as a strategy to earn trust. Based on a sample of Chinese firms, we find a significant and positive correlation between regional endowed trust and local firms’ environmental and social commitment. We suggest that endowed trust has two effects: 1) shaping local firms’ legal cognition and thus decreasing misconducts; and 2) providing resources and thus mitigating financial constraints, both of which encourage firms to protect the environment and society. Moreover, the positive effect of high endowed trust is weakened when corporate governance or local legal environment is strong.

How does executive authority affect household behavior? I develop a model in which the executive branch of the government is partially constrained. These constraints credibly limit intervention under normal conditions but can be overridden when a sufficiently large fraction of the population is in distress. Households anticipate this and strategically coordinate their financial risks through public markets, creating collective distress that compels government bailouts. Weaker constraints lower the threshold for intervention, making implicit guarantees more likely. The model explains why implicit guarantees are prevalent in China and predicts that such guarantees may discontinuously emerge elsewhere as executive constraints gradually weaken.

The general financial theory predicts a carbon premium, as brown stocks bear greater uncertainty under climate transition. However, a contrary green premium has been identified in China, as evidenced by the return spread between green and brown sectors. The aggregated climate transition sentiment, measured from news data using a large language model, explains 12%-33% of the variability in the anomalous alpha. This factor intensifies after China announced its national commitments. The sentiment-driven green premium is attributed to speculative trading by retail investors targeting green “concept stocks.” Additionally, the discussion highlights the advantages of large language models over lexicon-based sentiment analysis.

Recent evidence shows an increase in sovereign debt from China to emerging and low-income developing countries. Chinese lending contracts have stringent confidentiality clauses that restrict the borrowers from reporting these contracts. The use of these type of clauses hide the true fiscal and financial conditions of a country. This paper analyzes the debt sustainability and welfare implications of such clauses in the context of a sovereign default model with asymmetric information. I find welfare loses associated with reporting these contracts for countries that have debt with China, and small welfare gains for countries that do not have these commitments. This implies that additional incentives are necessary to encourage countries to embrace transparency initiatives.

This paper investigates the impact of Chinese firms’ ESG performance on their financial constraint and financing activities. We find a negative association between firms’ ESG performance and their financial constraint driven by the Chinese government’s commitment to tackling climate change. Compared with state-owned enterprises (SOEs), non-SOEs have alleviated their financial constraint through both equity and debt issuance, thanks to the stock price appreciation and green credit. High-pollution firms benefit from both equity and debt issuance, while low-pollution firms mainly finance through equity issuance. Our findings demonstrate the leading role of the Chinese government in its domestic capital markets.

We examine the determinants and consequences of an important but understudied strategy in managing political risks—firm political alignment (FPA). Using a GPT large language model, we measure FPA as the extent to which firms align their actions and commitments with government agendas as presented in annual reports. Leveraging two political events in China, we find that: 1) as the anti-corruption campaign that started in 2012 and later spread across different provinces serves as a staggered shock that reduces the effectiveness of political ties, firms increase their FPA in response; 2) the extent of FPA largely mitigates the negative market reaction around the announcement of the common prosperity policy in 2021 which heightens policy uncertainty for non-state-owned firms. Overall, our findings provide novel evidence that firms engage in FPA to manage political risk.