Bonds for a Bluer Tomorrow: Corporate climate concern and its impact on corporate bond maturities

Abstract

The study examines whether and how corporate climate concern ($\mathrm{CCC}$) affects the maturity of corporate bonds. Based on the information in a company annual report’s management discussion and analysis (MD&A) section, we construct a corporate climate concern index using text analysis methods. The empirical findings indicate that $\mathrm{CCC}$ promotes the issuance of longer-term corporate bonds. The findings are robust to controlling for endogeneity issues, and using an alternative $\mathrm{CCC}$ measurement and alternative estimation models. A mechanism analysis explains the positive effect of $\mathrm{CCC}$ on corporate bond maturity as follows: companies with a high level of concern for climate issues are 1) more inclined to raise funds by issuing longer-term bonds to support their long-term climate management investment plans and 2) more likely to obtain approval for the issuance of longer-term bonds. In addition, we show that the positive effect of $\mathrm{CCC}$ on bond maturity is pronounced in firms in better financial conditions and with greater R&D investments.