Demo.dta

Using data from 2010–2022, we find a significant negative relationship between ESG performance and corporate bond credit spreads in China, robust to multiple tests. Addressing endogeneity with a quasi-natural experiment—the 2017 pilot green finance reform approved by the China State Council—confirms these results. Further, decomposing credit spreads into liquidity and default components reveals that ESG performance primarily lowers default spreads, with no significant impact on liquidity spreads. Lastly, our analysis suggests that improved ESG quality reduces default risk by enhancing operational stability and mitigating idiosyncratic risk.<b>Keywords: </b>ESG; Corporate bond; Credit spread; Green finance reform