Impact of national culture and environmental performance on stock responses to corporate green bond issuance announcements

Climate change, stemming from global warming, poses a significant financial risk for the business world. Green bonds are necessary for mitigating climate change risk and environmental sustainability. Green bonds have gotten much attention from investors due to their sustainable and environmentally friendly nature. There have been some empirical studies on stocks’ responses to green bonds’ issuance announcements, and results are still inconsistent regarding the positive and negative stocks’ responses to such announcements. Further, the role of country-level factors such as national culture and environmental performance that can impact stock’s response to corporate green bond issuance announcements is also missing in the literature. Therefore, this study (1) investigates the stocks’ responses to corporate green bond issuance announcements, (2) examines the impact of national culture on stocks' response to corporate green bonds’ issuance announcements, and (3) investigates the impact of national environmental performance on stocks' response to corporate green bond issuance announcements. Data from 230 international corporate green bond issuers from 38 countries between 2013 and 2022 was collected from the Climate Bonds Initiative and International Capital Market Association databases to accomplish the first objective. The stock price data of green bond issuers has been gathered from the data stream. After applying the standard event study methodology, the cumulative average abnormal return was calculated to measure the stock's responses to corporate green bond issuance announcements. The results of the first objective show that stocks respond positively to the corporate green bond issuance announcement. Furthermore, to investigate the second objective, data on three national cultural dimensions, i.e., Individualism, Long-Term vs. Short-Term Orientation, and Uncertainty Avoidance, for 38 countries between 2013 and 2022 has been gathered from the Hofstede Insight website. The cumulative average abnormal return calculated in objective one has been used to measure stocks' response to corporate green bond issuance announcements to achieve objectives 2 and 3. After applying the Random Effect Model, the results of the second objective show that national culture has a significant positive impact on stock responses to corporate green bond issuance announcements. Similarly, data from the Environmental Performance Index to measure national environmental performance was gathered for 38 countries between 2013 and 2022 from the Environmental Performance Index website to achieve the third objective. After applying the Random Effect Model, the results of the third objective show that national environmental performance has a significant positive impact on stock responses to corporate green bond issuance announcements. Overall, the results highlight that stocks respond positively to corporate green bond issuance announcements, further national culture and environmental performance significantly and positively impact these responses. The results of this study are expected to contribute to bridging the theoretical gap by examining the role of national culture and environmental performance in green bond research. Therefore, it will allow policymakers to re-examine the current policies on green bond issuance and establish an appropriate green bond issuance policy considering countries’ national cultures and environmental performance.

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