Browsing by Subject "Abnormal returns"

The aim of the thesis is to study how green bond offerings affect the stock price of a listed company. Green bonds are a relatively new form of securities. Their valuation effects, pricing and other effects on company success have been studied only little so far. A green bond differs from a conventional bond only in that the proceeds must be used for projects that contribute to environmental objectives. The thesis also analyses how different characteristics, such as bond credit rating, maturity type or year of issuance, or company industry, listing status and domicile affect the possible valuation effect of Green Bond issuance. This thesis has been commissioned by Indufor Oy. The data for the study were collected from the Bloomberg database with OP’s license and open online sources. Two samples were formed. The first consisted of the details of 219 corporate green bonds issued during 2014–2019. The second sample consisted of the details of 183 conventional bonds. The second sample was formed by identifying nearest neighbour matches for green bonds using the Mahalanobis distance to determine the closest match, based on bond and issuer characteristics. The study was conducted as a quantitative event study. Closing prices of the issuing companies’ shares were used to deter-mine regular returns using four different factor models. The difference between these regular and actual realized returns on the announcement date of the bonds (when a bond was first announced to the public) and ten days surrounding this date were interpreted as abnormal returns attributable to the announcement of the bond. These abnormal returns were tested for statistical significance. Contrary to previous research, the current study finds that announcing a green bond offering results in a statistically significant, negative stock price reaction. The average cumulative abnormal return during [-1,1] surrounding the announcement date is found to be -0.267%. A similar result is not found from the sample of conventional bonds. This leads to the assumption that the abnormal returns are attributable to the “greenness” of a green bond. The geographic location of issuers was found to impact the size of the stock price reaction. Green bonds issued by companies in developed countries were not found to result in significant stock price reaction. Green bonds issued by companies in developing countries on the other hand were found to result in a positive stock price reaction. During 2014–2016 stock prices were found to react more strongly to green bond announcements than during 2017–2019. During both periods, reactions were negative, however. Green bonds issued by financial companies resulted in statistically significant negative stock price reaction, while there were no statistically significant reactions to green bonds issued in other industries. Green bonds with poor credit ratings resulted in steeper negative price reactions than investment-grade green bonds, which was also statistically more significant. The results are surprising, since environmentally sustainable business has been connected to improved financial success in previous studies, and green bond issuance can be understood to signal commitment to environmentally sustainable performance. Based on the current study it is reasonable to conduct further studies on green bonds.