How Companies and the Market Respond to the Issuance of Green Bonds

During the past decade, many corporations across the globe have issued green bonds – which are identical to traditional corporate bonds except that their proceeds are dedicated to environmental and climate-friendly corporate investments. Since they were first created in 2013, green bonds have been issued at a remarkably rapid rate and received increasing media attention. As of December 2021, the cumulative green bond market is estimated to have exceeded $1.5 trillion dollars.

Proponents have suggested that the announcement of a green bond issuance signals that a corporation is adhering more closely to environmental and climate-friendly policies. Furthermore, the argument goes, employees, customers, suppliers, and investors prefer to work at, do business with, and invest in corporations that are environment and climate friendly. Under what we call the Green Stakeholder Hypothesis, announcement of a green bond issuance should cause a company’s stock price to rise.

An alternative view is the Greenwashing Hypothesis, which posits that corporations will make announcements to signal that they support environmental and climate friendly policies – even though they have no serious intention of following through on the substance or spirit of their announcements. Under the Greenwashing Hypothesis, announcement of a green bond issuance would not cause a company’s stock to rise.

One version of the Greenwashing Hypothesis holds that the stock market just ignores a green bond issuance announcement, and the response is statistically indistinguishable from zero. Another version holds that the stock market responds negatively to the green bond issuance announcement because it signals that mangers know of some operational, financial, or regulatory problem with the company that they are unwilling to address in a serious and substantive manner. This possibility was first raised by Bhagat and Hubbard (2022) in their analysis of Nobel laureate Milton Friedman’s long-term firm value maximization hypothesis vis-à-vis the Business Roundtable’s stakeholder paradigm. Bebchuk and Tallarita (2020), and Bhagat and Hubbard (2022), note that a stated adherence to the stakeholder paradigm would absolve managers from being held accountable to firm financial performance. That’s because managers could legitimately claim that their focus was on employees, customers, or the environment rather than just long-term firm value. Flugum and Southern (2021) document evidence that some companies publicly embrace ESG policies as a cover for poor business performance. They report that, when managers underperformed the earnings expectations (set by analysts following their company), they often publicly talked about their focus on ESG. But when they exceeded earnings expectations, they made few, if any, public statements related to ESG.

In a new paper, we analyze the stock market response to a comprehensive international sample of 1,560 corporate green bond announcements during January 2013 through January 2022. Consistent with the Greenwashing Hypothesis, we do not find any significant market response to these announcements. We conduct a battery of tests to check the robustness of this result. Specifically, we find an insignificant market response to the first announcement by a firm, to green bond announcements by companies domiciled in different countries, or to announcements in different periods. Additionally, in estimating abnormal returns, we consider both the MSCI All Country World Index, and the domestic stock market index as the market index for non-U.S. firms.

Also, we study the carbon emissions by companies that announce green bond issuance, before and after the announcement. The Green Stakeholder Hypothesis posits a decline in carbon emissions after the announcement. The Greenwashing Hypothesis posits no change in carbon emissions after the announcement. We document no change in carbon emissions after the announcement.

Finally, we analyze the abnormal operating performance of companies that announce the issuance of green bonds. In the year of the green bond announcements, the abnormal operating performance of these companies is significantly negative. This is consistent with the argument that managers of these firms are using the green bond announcements as a cover for their poor business performance.


Bebchuk, L. A., & Tallarita, R. (2020). The illusory promise of stakeholder governance. Cornell Law Review 106, 91.

Bhagat, Sanjai, and Hubbard, Glenn (2022). Rule of law and purpose of the corporation. Corporate Governance: An International Review30(1), 10-26.

Flugum, Ryan and Souther, Matthew, Stakeholder Value: A Convenient Excuse for Underperforming Managers? (August 23, 2021). Available at SSRN: or

This post comes to us from professors Sanjai Bhagat at the University of Colorado at Boulder and Aaron Yoon at Northwestern University. It is based on their recent article, “Corporate Green Bonds: Market Response and Corporate Response,” available here.