Impact of the Issuance of Green Bonds on Firms' Performance

Corporate green bonds seem to be a new practice in corporate finance, yet little is known about its advantages. The purpose of this study is to check if green bond issuance could lower the cost of capital than traditional bonds, if there are differences in the size of issuance of green and conventional bonds and how ESG factors influence the decision of companies to issue green bonds. A total of 90 unique corporate green and 90 unique conventional corporate bond issuers are collected from Bloomberg’s Fixed income and ESG database. The data on WACC is also collected from Bloomberg. The companies with Bloomberg classification system Government and Financial are excluded from this study. Companies that are labelled private are also excluded from this study. This study conducted a random effect panel regression, OLS and logistic regressions. The ESG factor consists of the environmental, social, and governance score of the companies in the sample. Based on the results of the regressions, corporate green bonds lower the WACC of a firm compared to conventional bonds. The study also revealed that green bond issuance reduces the amount issued of a bond compared to conventional bonds. It can be concluded that ESG factors influence the decision of companies to issue bonds, hence green bonds. To the best of the author’s knowledge, this study is the first to examine the Impact of the Issuance of Green Bonds on WACC by using a global data set of companies. KEYWORDS: WACC, Environmental, Social, and Governance (Esg) Factor, Corporate Green Bonds, Issuance Size