The reputation effect of green bond issuance and its impact on the cost of capital

Abstract

cesis electronic working paper series paper no. 493 the reputation effect of green bond issuance and its impact on the cost of capital aleksandar petreski dorothea schäfer andreas stephan november, 2023 the royal institute of technology centre of excellence for science and innovation studies (cesis) www.cesis.se the reputation effect of green bond issuance and its impact on the cost of capital∗ aleksandar petreski † dorothea schäfer ‡ andreas stephan § abstract this study explores the effect of frequent green bond issuance on a firm’s financing costs. using a sample of listed swedish real estate companies issuing in total 1,074 bonds over the period from 2011 to 2021, difference-in-difference analyses and instrumental variable estimations are applied to identify the causal impact of frequent green vis-à-vis frequent non-green bond issuing on a firm’s cost of capital and credit rating. the paper argues that repetitive issuance lowers a firm’s cost of capital, while the effects of first or one-time green bond issuance are the opposite. in line with the reputation capital hypothesis, issuing green bonds even lowers the firm’s cost of equity capital, while issuing non-green bonds does not affect the cost of equity. keywords: bond issuance, green debt, reputation capital, sustainability, esg jel codes: g32, r30, r32 ∗this paper is a revised version of chapter 1 of aleksandar petreski’s phd dissertation (petreski, 2022). we are grateful to bertram steininger, bing zhu, jonas …

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