When green is no longer a win - new evidence on the shareholder value effects of green bond offerings11The authors would like to thank Konstantinos Bozos, Samit Gupta, Antony Potter, Hai-Anh Tran, and participants at the 2023 British Academy of Management Conference, 2023 Corporate Finance Days, 2023 European Financial Management Association Annual Meeting and Second Credit Scoring and Credit Rating Conference for their helpful comments and suggestions

This paper aims to examine the sign, magnitude, and drivers of stock price reactions to corporate green bond announcements by U.S., Western European, and Chinese firms from 2013 to 2022. Using a standard event study methodology, we estimate abnormal stock returns around green bond announcement dates. Our analysis yields several novel findings. First, we document that green bond announcements were associated with neutral to positive abnormal returns during the market's “inception stage” (2013–2018), but elicited negative reactions during the subsequent “growth stage” (2019–2022). Second, we show that this shift can be largely explained by changes in issuer characteristics that heighten greenwashing concerns. Specifically, growth-stage issuers exhibit a lower green innovation capacity and have fewer valuable growth opportunities relative to inception-stage issuers, potentially undermining investor confidence in the authenticity of their environmental motives. In contrast, changes in bond design, signaling value, pro-environmental investor preferences, or other issuer traits do not explain the downward trend in announcement returns. Our findings are robust to alternative specifications and do not apply to a comparable sample of non-green bond offerings. Overall, our results suggest that prospective issuers should carefully evaluate whether green bonds are appropriate for their firm, as investors are increasingly attuned to greenwashing risks. Our findings also point to a need for enhanced transparency and regulatory oversight to restore trust in the green bond market.