THE IMPACT OF GREEN BONDS ISSUANCE ON COST OF CAPITAL

This study examines the impact of Green Bond issuances on the implied cost of capital for European firms listed on the STOXX 600 index. Employing a Difference-in-Differences (DID) methodology, the research assesses whether companies issuing Green Bonds experience a measurable reduction in their cost of capital relative to non-issuers. To mitigate potential biases and ensure the robustness of the findings, advanced matching techniques, including Entropy Balance and Propensity Score Matching (PSM), were utilized. The results demonstrate that Green Bond issuances are associated with a significant decrease in the implied cost of capital, particularly evident in 2020. This underscores the effectiveness of Green Bonds in lowering financing costs for firms engaged in sustainable practices. The findings were further validated through rigorous robustness checks, such as Parallel Trend and Placebo Tests. Additionally, the analysis revealed that firms with higher Environmental, Social, and Governance (ESG) scores generally face a higher cost of capital. However, the issuance of Green Bonds effectively mitigates this impact, leading to an overall reduction in capital costs. Furthermore, the study explores the influence of Sustainability Linked Bonds (SLBs) on the implied cost of capital. While SLBs also contribute to lowering capital costs, their effect is less pronounced compared to that of Green Bonds. Overall, this research highlights the financial advantages of Green Bonds in promoting corporate sustainability and reducing the cost of capital for European companies.