LAUSR

Abstract I examine corporate green bonds, whose proceeds finance climate-friendly projects. These bonds have become more prevalent over time, especially in industries where the environment is financially material to firm operations. I show that investors respond positively to the issuance announcement, a response that is stronger for first-time issuers and bonds certified by third parties. The issuers improve their environmental performance post-issuance (i.e., higher environmental ratings and lower CO2 emissions) and experience an increase in ownership by long-term and green investors. Overall, the findings are consistent with a signaling argument—by issuing green bonds, companies credibly signal their commitment toward the environment.