Interview to the Swiss financial media Sphere Magazine on "Arthur Cecil Pigou" and the relevance of the polluter-pay principle for the resolution of the climate problem: Read it at https://lnkd.in/eb4WvtbV.
Why Do Firms Issue Green Bonds? with Shema Mitali and Jean-Charles Rochet
Abstract: Green bonds allow firms to commit to climate-friendly projects. Empirical studies show that stock prices react positively to their issuance. We suggest that green bonds help managers signal the profitability of their green projects. We build a signaling model in which firms' incentives to undertake green projects are amplified by short-term managerial incentives. We test this prediction by exploiting cross-industry differences in the stock-price sensitivity of managers' pay and cross-country variations in effective carbon prices. Our results also imply that green bonds are not substitutes for but complements to carbon pricing.