Climate Regulatory Risk and Corporate Bonds

Lee H. Seltzer, Laura Starks and Qifei Zhu

No 29994, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Investor concerns about climate and other environmental regulatory risks suggest that these risks should affect corporate bond risk assessment and pricing. We test this hypothesis and find that firms with poor environmental profiles or high carbon footprints tend to have lower credit ratings and higher yield spreads, particularly when their facilities are located in states with stricter regulatory enforcement. Using the Paris Agreement as a shock to expected climate risk regulations, we provide evidence that climate regulatory risks causally affect bond credit ratings and yield spreads. Accordingly, the composition of institutional ownership also changes after the Agreement.

JEL-codes: G12 G14 G23 G28 (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-ene, nep-env and nep-fmk
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Working Paper: Climate Regulatory Risks and Corporate Bonds (2022)
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