| Pub. Date | : Jan, 2023 |
|---|---|
| Product Name | : The IUP Journal of Applied Economics |
| Product Type | : Article |
| Product Code | : IJAE20123 |
| Author Name | : Manoj Kumar and Rinki Verma |
| Availability | : YES |
| Subject/Domain | : Economics |
| Download Format | : PDF Format |
| No. of Pages | : 15 |
The size of green bond market has been increasing rapidly since the Paris Agreement on climate change was adopted in 2015. This paper is an empirical study on the public companies that have financed greenfield projects through green bonds. The study is based on equity investor behavior following the news announcement of green bonds. An event study approach is applied to find out the impact on abnormal returns of stocks during the window period of the announcement day. The study supports that stock return behavior is positive, which is an indication that investors responded positively to the announcement of green bonds. Leverage analysis is also performed, and it is found that the financial leverage increased in the post-issue period of green bonds. It is an indication that the use of low-cost security in financing the greenfield projects is capable of maximizing shareholder returns, if the return on investment is more than the cost of green bonds. This paper adds to the existing literature as it focuses on the stock performance of public companies around green bond issuance announcement. Further, the analysis of financial leverage of the firms distinguishes this study from others.
The unprecedented industrial development has resulted in pollution problem, which is becoming a major menace to many countries. Studies on behavioral economics show people contemplating the long-term issues related to climate change (Fatica and Panzica, 2021). This impact could be seen over the decades and in various countries (Brekke and Johansson-Stenman, 2008). Climate change has encouraged countries to adopt green practices and switch to carbon financing. Climate change is forcing economies to have curative solutions and shift towards low-carbon economy, along with the robust interest on productivity, value creation and realization (Kochetygova and Jauhari, 2014).
Climate change mitigation and adaptation require billions of dollars; the task necessitates abundant resources, which cannot be undertaken by governments in developing countries (Buntaine and Pizer, 2015). Huge private investment is directly needed as add-on to government