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Signaling sustainability: Differential reaction of the stock market following the announcement of sustainability-linked bonds

Author

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  • Affolter, Beat
  • Ciarla, Elisa
  • Meyer, Julia
  • Sugandhita, Sugandhita

Abstract

This paper explores the suitability of sustainability-linked bonds (SLBs) for signaling sustainability intentions by analyzing the market reaction following their announcement and issuance. We find no significant share price reaction for SLBs targeting greenhouse gas emission reduction objectives. The lack of significant market reaction also applies to SLB-independent emission-reduction announcements. In contrast, for other types of SLB goals, such as those linked to sustainability ratings, renewable energy, or energy efficiency, we observe a significant positive market reaction. We argue that climate transition activities of companies are already priced by the market, while other sustainability goals are positively received.

Suggested Citation

  • Affolter, Beat & Ciarla, Elisa & Meyer, Julia & Sugandhita, Sugandhita, 2024. "Signaling sustainability: Differential reaction of the stock market following the announcement of sustainability-linked bonds," Finance Research Letters, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:finlet:v:63:y:2024:i:c:s1544612324002915
    DOI: 10.1016/j.frl.2024.105261
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    References listed on IDEAS

    as
    1. Julian F Kölbel & Adrien-Paul Lambillon, 2023. "Who Pays for Sustainability? An Analysis of Sustainability-Linked Bonds," Swiss Finance Institute Research Paper Series 23-07, Swiss Finance Institute.
    2. Riley, John G, 1979. "Informational Equilibrium," Econometrica, Econometric Society, vol. 47(2), pages 331-359, March.
    3. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    4. Krüger, Philipp, 2015. "Corporate goodness and shareholder wealth," Journal of Financial Economics, Elsevier, vol. 115(2), pages 304-329.
    5. Leary, Mark T. & Roberts, Michael R., 2010. "The pecking order, debt capacity, and information asymmetry," Journal of Financial Economics, Elsevier, vol. 95(3), pages 332-355, March.
    6. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(3), pages 355-374.
    7. Riley, John G, 1979. "Noncooperative Equilibrium and Market Signalling," American Economic Review, American Economic Association, vol. 69(2), pages 303-307, May.
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    Cited by:

    1. Khan, Muhammad Arif & Vismara, Silvio, 2025. "Green bond issuance and corporate environmental and financial performance: A meta-analysis," International Review of Economics & Finance, Elsevier, vol. 102(C).
    2. Mariani, Massimo & D’Ercole, Francesco & Frascati, Domenico & Fraccalvieri, Giuseppe, 2025. "Sustainability-linked bonds, corporate commitment and the cost of debt," Research in International Business and Finance, Elsevier, vol. 74(C).
    3. Parra-Domínguez, Javier & Dote-Pardo, Jairo, 2025. "Corporate sustainability and stock market dynamics: What challenges arise for future research?," Innovation and Green Development, Elsevier, vol. 4(5).

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    Keywords

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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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