Annotated Bibliography: Stock Markets and Green Bonds

Annotated Bibliography:

(Brown, S. and Warner, J. (1985). Using daily stock returns. Journal of Financial Economics, 14(1), pp.3-31.)

Brown and Warner (1985) analyse the characteristics of daily stock returns and how event study methodologies are affected by the properties of these data. He finds that daily data are relatively easy for event studies. Even ignoring the particular characteristics of daily data, the standard procedures are well-specified. However, recognising differences and variance conditional and daily excess return autocorrelation on an event sometimes can be beneficial. Further, tests account for potential dependence have lower power than tests ignoring cross-sectional dependence.

(Tang, D. and Zhang, Y. (2018). Do Shareholders Benefit from Green Bonds?. SSRN Electronic Journal.)

By investigating the actual influence of green bonds issued by corporations and its announcement returns in 28 countries from 2007 to 2017, Tang and Zhang (2018) confirmed that stock markets are positively reacting to green bonds issuance. While there is no significant evidence on continuously premium for green bonds, indicating that the driven of the positive stock returns are not entirely from the lower cost of debt. Besides, they find an increasing trend of institutional ownership, particularly domestic institutions, after the firm launches green bonds. Moreover, the issuance of green bonds improved stock liquidity significantly. In short, Tang and Zhang (2019) suggest that current shareholders are beneficial from the issuance of green bonds. 

(Klassen, R. and McLaughlin, C. (1996). The Impact of Environmental Management on Firm Performance. Management Science, 42(8), pp.1199-1214.)

Klassen and McLaughlin (1996) state possibilities that financial performance significantly affected by environmental management. Numerous people believe that company actions regarding environmental management are harmful to its profitability, while others quote anecdotal evidence of improved advantageousness. By employing the event study methodology, they analysed the connection between heavily environmental management and enhanced recognised prospective financial achievement, using stock market data. The result shows a significant positive relationship between strong environmental management and returns and a significant negative relationship between weak environmental management and returns. Also, they estimate the potential valuation of the financial market using cross-sectional analysis. Industries show scepticism and react differently regarding the initial announcement of environmental events. Accurately, the enormous growth in market valuation was captured with first-time award announcements while a smaller increase was noticed in fields which are not environmentally friendly.

(Wilburn, K. and Wilburn, R. (2014). The double bottom line: Profit and social benefit.)

A significant changing of business in the United States is setting up annual evaluation to companies which have ethical commitment while making money. The new business model has three main objectives; it brings bridge for non-profits intend to succeed, for firms aiming profit to build more social awareness and for individual investors to have more choices on socially responsible companies. Willburn and Willburn (2014) discussed the advantages of the new model and confirmed that certified corporations are gradually well-combined profit and social benefits.

(Baker, M., Bergstresser, D., Serafeim, G. and Wurgler, J. (2018). Financing the Response to Climate Change: The Pricing and Ownership of U.S. Green Bonds. SSRN Electronic Journal.)

Using a model that excludes assets as a pecuniary source of utility, Baker (2018) investigate the green bonds pricing and ownership model in the United States. The results find that the issuance price of green bonds is higher than ordinary bonds after-tax. Further, there is a strong evidence shows that small-scale and riskless green bonds are closely held than ordinary bonds. Certified green bonds have a significant impact on its ownership and pricing.

(Dyck, A., Lins, K., Roth, L. and Wagner, H. (2019). Do institutional investors drive corporate social responsibility? International evidence. Journal of Financial Economics, 131(3), pp.693-714.)

Dyck (2019) investigate the effect of shareholders on companies environmental and social performance. Using a comprehensive dataset from 41 countries, he finds a casual relationship between institutional ownership and environmental and social performance. He states that institutions driven by both financial and social returns. Cross-sectionally, investors from countries which have stronger faith in corporate social responsibilities show higher environmental and social performance.

(Ferreira, M. and Matos, P. (2008). The colors of investors’ money: The role of institutional investors around the world. Journal of Financial Economics, 88(3), pp.499-533.)

Using equity holding data from 27 countries, Ferreira and Matos (2008) analyse the role of institutional investors globally. They find that foreign institutions have a higher preference in overweighting to firms that are associate with Morgan Stanley Capital International World Index and cross-listed in America. In contrast, all institutions tend to invest in large companies with decent administration. He suggests that overseas and autonomous organisations observe large corporations.

(Hong, H. and Kostovetsky, L. (2012). Red and blue investing: Values and finance. Journal of Financial Economics, 103(1), pp.1-19.)

Hong and Kostovetsky (2012) evaluate whether political affect investing by analysing the relationship between American investment administrators and political contributions using data from Morningstar and Federal Elections Committee website. The results suggest that mutual fund managers who donate to Demoncrats tend to invest less in socially-irresponsible companies. However, Democratic managers tend to have a higher likelihood to manage socially responsible investing (SRI). By holding other fund and directors’ characteristic same, the results still adapt to non-socially responsible investing funds.

(Reboredo, J. (2018). Green bond and financial markets: Co-movement, diversification and price spillover effects. Energy Economics, 74, pp.38-50.)

Reboredo (2018) analyse the co-movement between stock markets and green bonds using four indices, including financial data from Barclays MSCI Green Bond Index, the S&P Dow Jones Green bond Index, Solactive Green Bond Index and Bank of America Merrill Lynch Green bond Index. The results show weak evidence of co-integration among green bond market, energy commodity markets and corporate and treasury bond market. They also find that green bond is not playing an essential role in beneficial investors via diversification in corporate and treasury markets. At the same time, there are significant advantages for investors in stock and energy markets to holding bonds with greenness.

(Barua, S. and Chiesa, M. (2019). Sustainable financing practices through green bonds: What affects the funding size?. Business Strategy and the Environment, 28(6), pp.1131-1147.)

Using comprehensive data between 2010 and 2017 download from Bloomberg, Barua and Chiesa (2019) study the elements affecting the size of financing via green bonds supply. They evaluate the impact of issuance size through taking in consideration of three factors, including issuer characteristics, market characteristics and bond characteristics. The results show that the asymmetrical of issue size greatly influenced by numerous factors. Nonetheless, the majority of the effects are diversified among rating grades and change over time. On the other side, the result failed to show evidence of growth in the average size of issuance recently, which is opposite to the market trend. Also, the high grading bonds demonstrate the remarkably smaller size of financing than others.