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Synopsis

Research problem

We examined the role of external verification and assurance as credibility-enhancing mechanisms provided voluntarily by green bond issuers.

Motivation

Research on green bonds has focused mainly on bond yield differentials, with mixed results challenging early evidence that bondholders sacrifice financial returns for environmental benefits. However, the external verification and assurance of green bonds and related market effects are underexplored. Our study addresses this issue and contributes to the policy debate on the current market-based governance of green bonds, examining how credibility-enhancing mechanisms can strengthen market confidence and yield economic benefits.

Test hypotheses

We examined the market reactions to green bond issuance in the context of verification and assurance throughout the bond lifecycle. Our first hypothesis is that first-time green bond issuances accompanied by an external verification report are associated with higher market reactions. Second, green bond issuances that are backed by a verification report with an assurance statement are associated with more positive market reactions. Last, green bonds with postissuance verification are associated with higher market reactions.

Target population

This paper is useful for (a) companies issuing green bonds, (b) policymakers examining the role of external verification and assurance in signaling firm commitment to low-carbon projects, and (c) researchers studying the evolution of the green bond market.

Methodology

We investigated an international sample of 774 green bonds issued by listed non-financial companies from 2013 to 2021. We measured the market reaction to the announcement of these securities and analyzed the association between the use of credibility-enhancing mechanisms and abnormal returns.

Analysis

Consistent with signaling theory, we argue that the use of green bond verification is part of the issuer’s business strategy to convey a signal to the market regarding its commitment to using bond proceeds for low-carbon, climate-friendly projects. Our results provide evidence of the importance of third-party verification and assurance of non-financial information in the green bond setting.

Findings

Our findings indicate that green bonds accompanied by third-party verification reports attract a positive cumulative abnormal return of 0.30% over a three-day event window. We offer early evidence of the economic benefits associated with the assurance of green bonds issued by non-green firms (high CO₂ emitters).

On November 29, 2019, 12 days before its announcement, information on the ambitions of the European Green Deal was leaked. The leakage should have triggered a Europe-wide systemic shock to financial markets without an accompanying announcement of supportive measures. Applying event study methodology to a sample of 600 European large and mid-cap stocks, we find that the overall market reaction was indeed significantly negative, albeit moderate. Abnormal returns gradually decline with increasing greenhouse gas emissions levels. Conversely, the official announcement emphasizing financial support and the green growth narrative did not ignite a positive market reaction. The results are largely robust in multivariate regressions. We conclude that market participants incorporate available emissions information into (short-term) reassessments after a significant change in environmental policy becomes known.

We build upon social movement and investor attention theories to investigate the effect of “taking a knee” protests on the abnormal stock returns of NFL sponsoring companies. The study is conducted in two phases. Employing event study methodology in the first phase, we measured the abnormal returns and trading volumes of the companies during a four-year period from 2016 to 2020. While the results for abnormal returns are economically small, we found that there is 13.42% increase in trading volume in [0,$+$5], 61.28% in [0,$+$15], and 160.01% in [0,$+$30] event windows. There was also information leakage prior to the events as indicated by the 36.08 increase in trading volume in the [$-$30, $-$2] event window. We ran multiple regression models in the second phase to further examine the degree to which the unique circumstances surrounding the protests explain variations in abnormal returns. Companies that had higher brand values and the negative emotional tone of the comments made by the President of the United States about the protests were positively associated with abnormal returns. The results are also robust to methodological changes using abnormal returns adjusted for trading volume. Overall, the findings suggest that social activism by athletes is likely to affect investor attention and sentiment, thereby garnering a spillover effect on sponsoring companies’ stock prices and trading volumes.

This study examines the association between Corporate Social Responsibility (CSR) activities measured by two of Taiwan’s leading publishers, the Commonwealth Magazine and the Global View Magazine, and the acquirer’s short- and long-term performances after the merger announcement in Taiwan. We use CEO compensation and the firm’s free cash flow as the proxies for CEO self-confidence. We find that the acquirer’s CSR engagement is positively associated with its long-term performance but not with its short-term performance. CEO compensation is positively associated with the acquirer’s performance, especially after the mandatory establishment of the remuneration committee for publicly traded firms. However, the acquirer’s free cash flow is found negatively associated with its performance, supporting Jensen’s (Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76, 323–329) free cash flow hypothesis or CEO hubris. These findings indicate that the CSR measurements of Commonwealth Magazine and Global View Magazine do provide valuable information for CSR activities and that CSR activities do enhance firm value in the long run. Furthermore, the requirement for the establishment of the remuneration committee does improve the effectiveness of CEO compensation for firm performance in Taiwan.

Based on a sample of 59 European listed banks, we employ an event study analysis to investigate the impact of the European Banking Authority (EBA) stress tests on systematic risk measured by market betas. We further investigate the drivers of systematic risk taking into account bank-specific variables, which include credit quality, accounting policies, bank loan loss provisions (LLPs) and capital ratios, along with supervisory assessments of bank vulnerability to stressed scenarios. Finally, we assess the impact of credit quality and capital adequacy variables on the systematic risk associated with growth opportunities.

Our results suggest that stress tests act as a credible anchor to market expectations leading betas to decline. The effect is more pronounced for banks involved in multiple stress tests over time. Our second finding shows a significant and positive impact of Tier 1 capital ratios on betas, i.e., higher capitalization levels contribute to reducing the exposure to systematic risk. Moreover, market betas are responsive to bank vulnerability to stress scenario, in particular, regarding asset riskiness. Finally, betas of growth opportunities are affected by provisioning policies in the sense that conservative provisioning policies impair the ability to invest in growing assets.

In 2013, Glassdoor launched the Employees’ Choice Awards for the Top CEOs. Glassdoor’s awards are unique in that feedback from employees exclusively determines the winners. Given Glassdoor’s notoriety, claiming 64 million unique visitors and 11 million job listings monthly, being listed as a Top CEO certainly has reputational value — but does it translate to higher shareholder returns? We find that the overall Top CEO sample statistically outperforms a matched sample and the S&P 500 index on a raw and risk-adjusted basis with superior Tobin’s Q and annual returns one year after the announcement.

This study examines the contribution of credit default swaps (CDS) to price discovery in the run-up period preceding an acquisition announcement. We find that the CDS market plays a significant role in price formation before cross-border acquisitions, especially when target firms are from emerging economies. Further, the information flow from the CDS to the equity market is more pronounced when the bidder has a higher risk of default and the target nation has greater information asymmetry, weaker governance, and lower creditor protections. Our results are consistent with preferential use of the CDS market by informed traders ahead of negative credit news to hedge increased default risk or speculatively front-run widening credit spreads.