Does the Market Emphasize Violation of Green Commitment? A comparison of stock price response to negative ESG incidents between companies that have issued a green vs. conventional bond
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- Master Thesis 
This thesis examines the difference in stock price response to ESG incidents between green and conventional bond issuers. By using exact and nearest-neighbor matching on a sample of 86 green bond issuers and 177 conventional bond issuers with issuance between 2013 and 2019, we obtain 24, 20 and 35 matches for the environmental, social, and governance dimension, respectively. Aligned with previous research, we conduct event studies for the three dimensions to examine the stock price response to ESG incidents. As a new contribution, we examine whether the stock price response differs between the bond issuers by conducting a difference-in-differences estimation. The event study results indicate that the market responds differently for the three dimensions in the main event window [-4, 4]. We find a significantly positive stock price response when environmental incidents occur, while the opposite is the case for governance incidents. For social incidents, we find no indication of an abnormal stock price response. In the DD estimation, we find no indication of a difference in stock price response to ESG incidents between green and conventional bond issuers. By examining the pre-trends, we observe that the parallel trend assumption does not hold to the extent needed to ensure validity. Hence, we cannot provide insight on whether the market emphasizes violation of green commitment.