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Do carbon emissions affect the cost of capital?

Author

Listed:
  • Daniel Kim

    (University of Waterloo [Waterloo])

  • Sébastien Pouget

    (TSM - Toulouse School of Management Research - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - CNRS - Centre National de la Recherche Scientifique - TSM - Toulouse School of Management - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse, TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

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

  • Daniel Kim & Sébastien Pouget, 2026. "Do carbon emissions affect the cost of capital?," Post-Print hal-05470890, HAL.
    • Handle: RePEc:hal:journl:hal-05470890
    DOI: 10.1016/j.jcorpfin.2025.102932
    Note: View the original document on HAL open archive server: https://hal.science/hal-05470890v1
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