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Green bonds in shipping : an event study of green bonds in shipping and their impact on institutional ownership and equity risk

Paul, Anik Kumar; Solli, Kasper
Master thesis
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URI
https://hdl.handle.net/11250/2772242
Date
2021
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  • Master Thesis [3748]
Abstract
The allocation of capital to green projects have increased in recent years as focus on climate

change and the necessity to transit to a more sustainable and carbon neutral environment have

intensified. With decarbonization high on the agenda, and global regulations right around the

corner, shipping companies must make important decisions today about which type of

technology will be installed on their vessels in the decades to come.

One instrument for allocating capital to green projects is the issuance of green bonds, whose

popularity have exploded since the signing of the Paris Agreement. Because of the highly

global and cyclical nature of the shipping industry, the changing face of green project

financing raises an important question concerning whether green bond issuance influences the

decision making of institutional investors in the shipping industry. Do institutional investors

reward shipping companies who raises capital to fund green projects?

This study addresses this issue by investigating the fundamental change in shipping

companies’ ownership structure and risk profile in the years following implementation of

green projects. Employing structural equation modeling, this study examines whether and how

green bond issuance increase institutional ownership and reduce equity risk. We find evidence

that following green bond issuance; total and unsystematic equity risk is reduced, cost of

equity is reduced, and relative valuation is increased. Changes in institutional ownership is

inconclusive.

The implications of the findings are that equity owners in shipping companies could

potentially reap benefits from implementing green projects, by issuing green bonds.

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