The Impact of Biodiversity Risk Exposure on Investment and Equity Financing: Firm-Level Evidence From the United States

Abstract

This paper examines the impact of corporate biodiversity risk exposure on investment and financing sensitivities to growth opportunities captured by Tobin q (Q). Using a sample of non-financial US listed firms over the period from 2001 to 2023, we find that biodiversity risk exposure is positively associated with investment sensitivity to Tobin's Q, suggesting that firms facing higher biodiversity risk respond more strongly to growth opportunities signaled by market valuations. This result indicates that biodiversity risk amplifies the informational content of Tobin's Q in guiding investment decisions. In addition, we find that biodiversity risk exposure increases equity financing sensitivity to internal cash flows, implying that firms adjust financing behavior in response to perceived risk conditions while still relying on internal resources to support growth opportunities. Our findings suggest that biodiversity risk plays an important role in shaping how firms interpret market signals and allocate capital. These results have important policy implications for regulators, investors, and managers by highlighting the value of integrating biodiversity risk into corporate disclosure frameworks and sustainable finance policies to enhance market transparency and capital allocation efficiency