Generating shareholder value through the announcement of sustainability-linked bond issuance

Abstract

Recent years witnessed a rapid growth of ESG-related debt instruments. The most recent ones are Sustainability-Linked Bonds (SLBs), whose cash flows are linked to the issuers’ achievement of predefined sustainability performance targets. By applying an event study, this paper examines how the stock market responds to the announcement of issuing SLBs. Over a short event window of three trading days around the announcement, the cumulative abnormal returns are positive and significant. The highest excess returns of 0.32 % are observed on the day of the announcement. This is consistent with a signaling argument that by issuing SLBs, issuers reveal their commitment toward the performance target and are rewarded by the stock market.