How does Climate Transition Risk affect Corporate Default Probability: Evidence from Carbon-Intensive Enterprises in China

Abstract

Accelerating global climate governance and the deepening of China’s “dual carbon” strategy are fundamentally reshaping firms’ operating environments through policy tightening, technological disruption, and shifting market preferences. Precisely measuring such macro-level long-term climate transition risk and identifying its impact on micro-level corporate default probability has thus become a critical issue for financial stability and the green transition. Using 2010-2024 panel data of Chinese carbon-intensive listed companies, this study constructs a text-based transition risk index and employs two-way fixed effects and system GMM models. Results show climate transition risk significantly and non-linearly increases default probability, with electricity, heat, and gas sectors most exposed. Risks are higher for large firms and those in eastern/central regions, and are statistically more significant in non-capital-intensive industries. These findings provide micro-evidence for differentiated transition risk governance.