Stock market reaction to green bond announcements : an empirical study on firms listed on European stock exchanges

Abstract

This thesis contributes to the recent academic literature on green bonds, by providing evidence of positive abnormal returns following green bond announcements in the European stock market from November 2013 to October 2019. By applying an event study methodology on a sample of 54 public European companies, we find a cumulative average abnormal return of 0.37% in the two-day event window surrounding the green bond announcements. The results indicate that green bond announcements have a positive effect on the market valuation of public European firms, albeit less positive than the global average found in previous studies. Further, we find strong evidence of geographical differences within Europe, as green bond announcements lead to higher stock market returns in Northern Europe, with a cumulative average abnormal return of 0.67%. The other regions in Europe exhibit no significant returns, which suggests that Northern Europe is the main driver for the positive stock market reaction in Europe. When applying the event study methodology, we find significant positive returns for first-time green bond announcements and certified bonds, but no significant results for subsequent announcements or non-certified bonds. However, when controlling for bond and firm-specific characteristics using regression, the results indicate that also subsequent green bond announcements contribute positively to shareholder value. This is in contrast to the existing literature, which only find first-time green bond announcements to be significant for firm value. We therefore contribute to the literature by providing evidence for that firms benefit each time they announce a green bond, and not only the first time.