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What does green bond prospectus communicate about credit spread?

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  • Sharma, Shivani
  • Sharma, Udayan

Abstract

This study examines how textual disclosures in green bond prospectus affect the credit spread of green bonds. We use data on green bonds issued between September 2014 and December 2024 in the U.S., aligned or certified with the Climate Bonds Initiative (CBI). Results show that investors demand higher credit spread for prospectus with lower readability. The use of green terms in prospectus lowers credit spread. Similarly, positive tone reduces credit spread. These findings remain robust after addressing potential endogeneity concerns. Heterogeneity analysis reveals that the negative effect of green terms on credit spread is more pronounced for firms with poor Environmental, Social, and Governance (ESG) scores.

Suggested Citation

  • Sharma, Shivani & Sharma, Udayan, 2025. "What does green bond prospectus communicate about credit spread?," Finance Research Letters, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:finlet:v:79:y:2025:i:c:s1544612325005306
    DOI: 10.1016/j.frl.2025.107267
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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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