Determinants and Value Implications of Corporate ESG Bond Issuance: Evidence from South Korea

Abstract

We examine the determinants of and investor responses to corporate environmental, social, and governance (ESG) bond issuance in Korea. We find that ESG bond issuance is positively associated with firm size and foreign ownership stakes. We also find that firms that establish ESG committees at the board level and those that are subject to carbon emission trading system are more likely to issue ESG bonds. Unlike prior studies that analyze green bond issuance in developed markets and China, we find no significant stock market reaction to ESG bond issuance in Korea, suggesting that the signaling effect of ESG bonds–in which companies credibly signal their commitment to ESG by issuing ESG bonds–does not exist. This paper suggests that enhanced ESG bond standards, post-issuance reporting, and verification procedures are needed in the Korean ESG bond market.