Implications of Green Bond Issue Announcements on Equity Prices

Sammanfattning: In recent years, the green bond market has grown rapidly, and yet it remains an area of academia that has received little exploration. This paper furthers the understanding of green bond issue announcements through investigating their impact on equity prices in general, across the issuing firms’ regions and sectors, and on firms’ Environmental, Social and Governance (ESG) score. Using a sample of 205 green and 1995 traditional (non-green) bonds, we document that green bonds have larger abnormal returns upon issue announcements compared to traditional bonds. We further find differences in green bond abnormal returns across regions and sectors, showing that financial firms have larger abnormal returns than industrial firms and that European and American firms register larger abnormal returns than firms located in Asia. Moreover, we find that issuing a green bond can increase a firm’s ESG score. Overall, we find that green bonds lead to positive stock market reactions.