ESG rating and short selling in the corporate bond market

This paper explores the effect of ESG ratings on corporate bond short interest. Using corporate bond data from 2006 to 2022, we show that higher issuers' ESG scores are associated with lower bond short interest. Further examination reveals that changes in ESG scores can predict future changes in bond ratings. Overall, our findings suggest that bond short sellers consider issuers' ESG scores as valuable indicators in making investment decisions.