The Real Effects of Bank’s Green Bonds
In this thesis, I investigate whether banks that issue green bonds exert a real effect on their loan borrower firms’ green performance. By using the difference-in-difference (DiD) approach and the green performance of bank loan customers from 2002 to 2022, the findings show that after the green bond issuance, the borrower firm’s externally reported performance, such as environment, social, and governance (ESG) ratings and environmental score, improves, while the real green performance measured by environmental incidents and CO2 intensity is worse. To address the potential endogeneity concern, I utilize the Asset Purchase Programs (APP) operated by the European Central Bank (ECB) as an exogenous shock to the eligible banks. Eligible banks are more likely to issue green bonds after the announcement of an APP. Using the program as an instrumental variable, I show consistent results. Additionally, I show that a bank with green bonds strategically lends to borrowers with a higher divergence on real green performance to meet the obligations on green investments, and hedge by brown investments. I also find that a weaker regulatory environment amplifies the effects brought by green bond issuance. Furthermore, if the bank green bond issuance cost is higher than the cost of traditional bond issuance, the effects brought by the green bond issuance will also be amplified. These findings provide critical insights into the effectiveness of bank-issued green bonds.