Stock market reaction to green bond issuance
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This study examines the stock market reaction to the announcement of green bond issuance. The cumulative abnormal returns are positive and significant. This implies that shareholders view this form of financing as value-enhancing and funds from green bonds issuance are used to undertake profitable green projects or as a means of risk mitigation. Regression analysis shows that green bonds with higher coupon rates elicit a negative investor reaction. Also, firm size, Tobin’s Q, and growth are positively related to the CAR, while operating cash flow is negatively related to the CAR. The positive coefficient for firm growth is consistent with the value-enhancing function of funds from green bonds.
KeywordsGreen bonds Event study Environmental sustainability
JEL ClassificationG1 M14 Q5
I acknowledge the research assistantship of Karen Gonzalez Rodriguez in collecting the corporate green bond data. I would also like to thank participants at the 2017 World Banking and Finance Symposium in Bangkok, Thailand and the 2018 International Banking and Finance Society conference in Santiago, Chile. Funding for this research was provided by the University of Lethbridge Community of Research Excellence Development Opportunities Fund.
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