Modeling Investor Responses to Green Bond Issuance: Multidimensional Perspectives and Evidence From China

Although green bonds are rapidly growing to be a mature financing tool, the debate over whether there are benefits to be gained by issuers' stocks has yet to be resolved, especially in the emerging market context. Issuing green bonds, as a financing procedure targeted to green engineering projects and demonstrating the issuers' environmentally friendly attitude, does and how does it affect the issuers' stock prices, liquidity, and risk? We address this issue by paying attention to the Chinese green bond issuance events. Utilizing the event study method, research shows that investors react positively to green bond issuance events. However, this reaction is only sensitive to green bond listing events, but not to announcements. Investor responses can be reflected in the abnormal changes in stock prices and liquidity. Both the stock systematic risk and idiosyncratic risk show little change after firms issue green bonds, which illustrates that green bond issuance cannot shape the inherent investors' value judgments on issuer companies, thereby only producing temporary impacts. This study suggests that the green premium of corporate stocks induced by green bond issuance events may be sourced from investors' optimistic predictions about green transformation, rather than investors' subjective willingness to promote environmental sustainability.