GREEN BOND ISSUANCE AND SHAREHOLDER WEALTH - ANALYZING ABNORMAL RETURNS IN AN ESG CONTEXT

Abstract

Green bonds have garnered increased interest in financial markets and research, with some studies already demonstrating the benefits for companies in terms of lower cost of debt. However, the immediate effects and signaling value of green bond issuance remain underexplored, particularly concerning the role of a company's existing ESG profile. This study aims to investigate whether companies experience abnormal returns following the issuance of green bonds. Additionally, it examines the effects more closely for first-time issuers, considering ESG ratings as an independent variable. Using an event study approach, we find results consistent with previous research, showing abnormal returns for companies issuing green bonds, with a more pronounced effect for first-time issuers. Moreover, we find that a high ESG rating can enhance abnormal returns. Relating these findings to signaling theory, we argue that investors place significant emphasis on a company's existing reputation and ESG profile rather than solely on the signaling value of green bond issuance.