Corporate Green Bond and Stock Price Reaction

Abstract

The aim of this paper is to investigate the investors’ reaction to environmental actions taken by companies such as the issues of “green bond”. We conduct an event study around the announcement of green bond issuances for all publicly traded companies in the World in the period 2013-2019 (the largest period in literature on this field). Using CARs, we investigate the stock price behavior to green bond issues for 414 listed companies and we demonstrated significant stock price increases around the announcement date of first-time green bond issues. For second issues, the positive stock price reaction to eco-friendly initiatives decreases while it completely disappears for the subsequent issues. From the management perspective, green bond issue seems an eco-friendly action with decreasing marginal benefits, because after the first issue, the market is already aware about the firm’s commitment to green projects.

Sovereign green bond and country value and risk: Evidence from European Union countries

“…However, Baulkaran (2019) and Flammer (2021) highlight that the response of the stock market changes in relation to firm's and bond's characteristics and Cioli et al (2021) find a marginal benefit in issuing green bond. Indeed, the results of Cioli et al (2021) suggest a positive association between the firm's value and the issuance of green bond for the first time issuers but this positive stock price reaction to eco-friendly initiatives decreases while it completely disappears for the subsequent issues. In contrast with the previous papers, the results of Lebelle et al (2020) show a negative association between the stock prices and the green bond issuance.…”

“…Second, it is the first study examining the reaction of sovereign green bond issuance on the national stock and sovereign CDS market. Previous studies analysing the reaction of bond and equity markets to the announcement of green bond have focused on nonfinancial issuers (e.g., Baulkaran, 2019; Cioli et al, 2021; Ehlers & Packer, 2017; Gianfrate & Peri, 2019; Hachenberg & Schiereck 2018; Tang & Zhang, 2020; Zerbib, 2019). Third, we contribute to the literature examining the link between ESG‐based activities and the risk‐taking (e.g., Di Tommaso & Thornton, 2020; Drago et al, 2019; Oikonomou et al, 2012) by showing that Corporate Social Responsibility (CSR) impacts the credit risk of financial and nonfinancial firms.…”

Spread Analysis of the Sustainability-Linked Bonds Tied to an Issuer’s Greenhouse Gases Emissions Reduction Target

“…Green bonds are debt securities whose proceeds must exclusively finance or re-finance new or existing projects with environmental benefits. They were first issued by the World Bank in 2007 [10], but it was not until 2015 (with an advent of Paris Agreement) that the green bond market took off [11]. A distinguishing feature of green bonds issues is a third party or an authorized agent verification to ensure compliance with declared proceeds allocation [12].…”

“…A bulk of literature concentrate on widely known green bonds rather than SLBs. The studies focus on the benefits of green bonds in terms of bond market premium [18][19][20] identifying a small bond market premium for green bonds compared to that of conventional bonds [11]. The structural model for the premium paid by bondholders for green bonds when compared to that of conventional bonds (so-called 'greenium') was forged by E. & R. Agliardi [21].…”

“…Another direction is to study the way through which the issuance of green bonds can affect financial results [11]. In general, issuance of green bonds has a positive effect on financial and environmental performance [22,23], however other studies [10] have a contrary finding, arguing that green bonds do not influence financial situation of an issuer.…”