Green Bond Issuance Frequency and Corporate Cost of Capital

Abstract

This thesis examines the controversial cost-of-capital advantage of green bonds over conventional bonds in the green bond market. While anecdotal evidence suggested a cheaper cost of capital for green bonds, previous studies mostly focused on market reactions, coupon rates, and environmental scores, leaving a literature gap regarding the effect of green bond issuance on the corporate cost of capital. To address this gap, the thesis investigates the impact of frequent green bond issuance on the corporate cost of capital, comparing it to companies issuing a single green bond or only conventional bonds. Employing the difference-in-difference (DiD) method, the study analyzes changes in the cost of capital components, debt, and equity following multiple green bond issuances. A sample of 1462 green bonds issued by 787 universe public corporations between January 2015 and January 2023 is utilized, alongside a benchmark group of conventional bond issuers without green bonds for comparison. The dataset includes both bondlevel and firm-level data retrieved from the Thomson Reuters Eikon datastream. This study contributes to the literature by uniquely focusing on the relationship between green bond issuance frequency and the issuer's cost of capital, shedding light on financial implications. The findings of the study suggest that repetitive green bond issuers experience a lower cost of equity compared to first-time issuers of both green and conventional bonds. However, there is no significant evidence supporting a lower overall cost of capital for firms with frequent green bond issuance, which aligns with previous research by Flammer (2020) that find no pricing differential for corporate green bonds. This contradicts the cost of capital argument, which suggests that companies would issue green bonds to benefit from a cheaper source of financing.