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Do carbon emissions affect the cost of capital? Primary versus secondary corporate bond markets

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  • Kim, Daniel
  • Pouget, Sébastien

Abstract

We empirically study whether carbon emissions affect firms’ cost of capital raised on conventional bond markets. We find that firms with higher carbon emissions face higher spreads in the secondary market but not in the primary market. We show that this gap is related to uncertainty about climate concerns that affects differently primary and secondary market. This gap is also affected by the reputation of underwriting dealers: high reputation promotes the incorporation of climate concerns into bond yields. Our findings imply that, on average, carbon emissions do not affect the cost of capital in bond markets, thereby reducing firms’ financial incentives for decarbonization.

Suggested Citation

  • Kim, Daniel & Pouget, Sébastien, 2026. "Do carbon emissions affect the cost of capital? Primary versus secondary corporate bond markets," Journal of Corporate Finance, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:corfin:v:97:y:2026:i:c:s0929119925002007
    DOI: 10.1016/j.jcorpfin.2025.102932
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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