Voluntary Information Disclosure through Green Bonds

Abstract

This thesis investigates the effect of corporate environmental disclosure and its implications for green bond issuers, focusing on these bonds and the firms issuing them in relation to the 2020 EU Taxonomy regulations. By investigating a sample of European corporate green bonds and the firms issuing them, this study performs an event study into the announcement and implementation of the EU Taxonomy regulations. The abnormal return on the green bonds and the stock prices of the issuers are analyzed to investigate if the increased regulatory sustainable transparency altered investors' valuation of green bonds and the firms issuing them. Additionally, this study investigates if these effects are greater for firms issuing quantitatively more green bonds and for green bonds with more communicated use of proceeds. The results indicate that there is a positive market reaction for firms issuing green bonds in the short-term and a long-term positive market reaction for green bonds to the announcement and implementation of the EU Taxonomy. Additionally, firms that quantitatively issue more green bonds seem to be more sensitive to the change by showing significant positive abnormal returns. Next to this, green bonds with more use of proceeds experience higher abnormal returns than bonds with less use of proceeds. The findings indicate a positive link between voluntary sustainable information disclosure through green bonds as a financial instrument and investor valuation. Furthermore, the findings suggest that firms that have already disclosed sustainable information by issuing green bonds experience positive market reactions at the firm and bond levels. To examine if the EU Taxonomy played a crucial role in shifting the investor's interest in sustainable information disclosure, future research should investigate investors’ valuation of information disclosure in more depth so policymakers can adjust their policies effectively. That way, Europe can transition smoothly toward a green and sustainable economy.