Can Biodiversity Disclosure Improve Stock Liquidity? Evidence from China

Abstract

Biodiversity loss poses a threat to corporate performance and social welfare. Biodiversity disclosure enables investors to evaluate firms’ biodiversity status. However, it remains unclear whether and how biodiversity disclosure affects capital market efficiency. In this paper, we employ a binary variable derived from a word-frequency analysis of annual reports to determine whether a firm has disclosed biodiversity information. Using a panel of Chinese listed companies from 2011 to 2022, we provide robust evidence that Companies that disclose biodiversity information have experienced sustained improvements in stock liquidity. Furthermore, the effect is significantly amplified after the 2020 UN Biodiversity Summit, suggesting that investors respond positively to biodiversity disclosure. Channel analysis reveals that higher inventory turnover reinforces this positive effect, while greater financing constraints and higher management ownership weaken it. Heterogeneity analysis further indicates that this effect is more pronounced among firms with higher environmental information asymmetry, lower supply chain transparency, and lower patient capital. This study sheds light on how biodiversity disclosure affects market efficiency and offers important insights for future research and policy.