Do Investors Care About the Credibility of Green Commitments? A study of stock market reactions to corporate green bond announcements and the credibility of firms’ commitment

We study stock market reactions to firms’ announcements of first-time green bond issuances in two major markets, the US and Japan. Specifically, we attempt to answer two research questions: 1) whether green bond announcements provide stock-price relevant information and 2) whether stock price reactions are associated with the credibility of firms’ commitment to green investments. Our data set consists of 36 announcements from US firms and 31 announcements from Japanese firms from January 2013 to September 2021. We apply event study methodology and find evidence of green bond announcements providing stock-price relevant information in the US. Specifically, we find evidence of negative stock market reactions. By dividing the bonds into subgroups based on the credibility of issuing firms’ commitments to green investments, we find that the negative reaction is driven by groups of bonds with relatively low credibility. For Japan, we find no such evidence. We also apply OLS regression analysis with assumed measures of credibility as regressors. For the US market, we find a positive correlation between firms’ environmental performance and stock price reaction following announcement. For the Japanese market, we find no correlation between measures of credibility and stock price reaction