ESG Performance and Corporate Bond Volatility

Abstract

This study examines the effects of environmental, social, and governance (ESG) performance on bond volatility. After controlling for bond characteristics and firm fundamentals, we find a robust positive relationship between ESG performance and bond volatility. The empirical results demonstrate that the impact on bond volatility is primarily driven by ESG strengths rather than concerns. Additionally, the increase in bond volatility is concentrated among short-term bonds. The results are robust to alternative measures, sample periods, and endogeneity controls. Furthermore, the effect of ESG performance is more pronounced for firms with higher managerial risk-taking and poor information environments.

Keywords: G10, G12, G30, G32, M14