Shareholders` Reaction to the Issuance of Social and Sustainability Bonds

Social and sustainability bonds are types of ESG bonds with a growing popularity on the market, however, today they are not researched well enough. In this paper I examine the reaction of shareholders to the issuance of these debt instruments via an Event study. I find that it is controversial, it is negative at the day of announcement, but becomes positive 4 days after that. The observed reaction is explained by regulatory risks of these bonds and lack of any benefits, which, for example, green bonds provide. They do not have lower cost of capital, compared to matched conventional bonds. Also, I reveal that ESG score of the issuing company does not affect the market reaction, whereas a bond’s coupon and firm’s profitability have explanatory power. Based on these findings, I conclude that today the market does not differentiate these bonds from ordinary ones.