Stock market reaction to green bond issuance

  • Vishaal BaulkaranEmail author
Original Article


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.


Green bonds Event study Environmental sustainability 

JEL Classification

G1 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.


  1. Bauer, R., K. Koedijk, and R. Otten. 2005. International evidence on ethical mutual fund performance and investment style. Journal of Banking & Finance 20: 1751–1767.CrossRefGoogle Scholar
  2. Bello, Z.Y. 2005. Socially responsible investing and portfolio diversification. Journal of Financial Research 28: 41–57.CrossRefGoogle Scholar
  3. Benabou, R., and J. Tirole. 2010. Individual and corporate social responsibility. Economica 77: 1019.Google Scholar
  4. Brown, S., and J. Warner. 1985. Using daily stock returns: The case of event studies. Journal of Financial Economics 14: 3–31.CrossRefGoogle Scholar
  5. Dasgupta, S., B. Laplante, and N. Mamingi. 2001. Pollution and capital markets in developing countries. Journal of Environmental Economics and Management 42: 310–335.CrossRefGoogle Scholar
  6. Dhaliwal, D., O.Z. Li, A.H. Tsang, and Y.G. Yang. 2011. Voluntary non-financial disclosure and cost of equity capital: The case of corporate social responsibility reporting. Accounting Review 86: 59–100.CrossRefGoogle Scholar
  7. Derwall, J., N. Gunster, R. Bauer, and K. Koedijk. 2004. The eco-efficiency premium puzzle. Financial Analyst Journal 61: 51–63.CrossRefGoogle Scholar
  8. Dowell, G., S. Hart, and B. Yeung. 2000. Do corporate global environment standards create or destroy market value? Management Science 46: 1059–1074.CrossRefGoogle Scholar
  9. Eccles, R., I. Ioannou, and G. Serafeim. 2012. The impact of a corporate culture of sustainability of corporate behavior and performance, Harvard Business School working paper. Google Scholar
  10. El Ghoul, S., O. Guedhami, C.C.Y. Kwok, and D.R. Mishra. 2011. Does corporate social responsibility affect cost of capital? Journal of Banking & Finance 35: 2388–2406.CrossRefGoogle Scholar
  11. Goss, A., and G.S. Roberts. 2011. The impact of corporate social responsibility on the cost of bank loans. Journal of Banking & Finance 35: 1794–1810.CrossRefGoogle Scholar
  12. Hamilton, S. 1995. Pollution as news: Media and stock market reactions to the toxic release inventory data. Journal of Environment Economics and Management 28: 98–113.CrossRefGoogle Scholar
  13. Hamilton, S., H. Jo, and M. Statman. 1993. Doing well while doing good? The investment performance of socially responsible mutual funds. Financial Analyst Journal 49: 62–66.CrossRefGoogle Scholar
  14. Heinkel, R., A. Kraus, and J. Zechner. 2001. The effect of green investment on corporate behavior. Journal of Financial and Quantitative Analysis 36: 431–450.CrossRefGoogle Scholar
  15. Ioannou, I., and G. Serafeim. 2010. The impact of corporate social responsibility on investment recommendations, Harvard Business School working paper.Google Scholar
  16. Johnsen, D.B. 2003. Socially responsible investing: A critical appraisal. Journal of Business Ethics 43: 219–222.CrossRefGoogle Scholar
  17. Kliger, D., and O. Sarig. 2000. The information value of bond ratings. The Journal of Finance 55: 2879–2902.CrossRefGoogle Scholar
  18. Klassen, R., and C. McLaughlin. 1996. The impact of environmental management on firm performance. Management Science 42: 1199–1214.CrossRefGoogle Scholar
  19. Lee, D., and R. Faff. 2009. Corporate sustainability performance and idiosyncratic risk: A global perspective. Financial Review 44: 213–237.CrossRefGoogle Scholar
  20. Statman, M. 2000. Socially responsible mutual funds. Financial Analyst Journal 35: 30–39.CrossRefGoogle Scholar

Copyright information

© Springer Nature Limited 2019

Authors and Affiliations

  1. 1.University of LethbridgeLethbridgeCanada

Personalised recommendations