Green Bonds : A study on the signaling effects of issuing green bonds in the Swedish real estate sector

Abstract: Green bonds have rapidly increased in popularity over the past years, and are often seen as afacilitator in achieving the Paris Agreement of limiting global warming to 2°C. The Swedishreal estate sector is one of the most frequent issuers in the Swedish green bond market, as itstands for 49% of the total volume outstanding. Previous research has shown a positive linkbetween issuing green bonds and stock market performance, where stock turnover increasesin relation to the green bond announcement. Researchers argue that it can be explained by thesignaling theory, where issuing green bonds sends a signal to the market that the company iscommitted to the environment. This thesis aims to examine the effects on Swedish real estatecompanies following a green bond issuance. The research method was divided into two partsto capture the short and long term perspective. Firstly, an event-study method was conductedto compute the short term cumulative abnormal returns (CAR) on the issuing companies’stock price, and the cumulative average abnormal returns (CAAR) for the full sample.Secondly, an interview study was conducted to capture the long term effects of the issuingcompany. The results of the event study indicate no statistically significant evidence ofincreased stock price following the green bond announcement. In fact, a slightly negativeimpact is observed in the days following the announcement. This may be due to green bondissuance being perceived as an expected norm in today’s market. The results of the interviewstudy reveal that issuing green bonds can enhance company branding and attract increasedinvestor attention. These findings in our sample support the signaling theory, as itdemonstrates how it signals the company's sustainability strategy and reduces informationasymmetry. Overall, this thesis contributes to the understanding of the effects of green bondissuance on Swedish real estate companies, as it provides valuable insights to involved actors.