The Impact of Corporate Green Bonds on the Debt Financing of Firms: An Empirical Investigation

Mikkel Thrys√łe Pagh & Martin Anthony Weinzierl

Student thesis: Master thesis


This thesis examines the interaction between debt financing decisions by firms and access to green bond capital markets for the time period 2013 - 2019. This relationship is currently an unexplored topic in the academic literature, however, the rapid growth of the emerging green bond market makes it a topic of great interest to both academics and professionals. The insights into these debt financing decisions provided by this thesis, might offer valuable information for future work investigating sustainable capital markets as well as firm decisions in particular concerning sustainable investment by firms and their capital structure. Having identified this opportunity for research, we employ empirical tools from the well established corporate finance literature to offer initial findings on the topic of corporate green bonds and debt financing. Firstly, firm debt financing decisions are studied in a broad sense by assessing whether green bond issuing firms maintain significantly different leverage ratios. Our work follows in the footsteps of Faulkender and Petersen (2006) as we view the issuance of a green bond as a proxy for expanded capital market access. The analysis for a sample of North American firms suggests that green bond issuing firms do in fact have higher leverage ratios, while an examination of an international sample yields no significant results. After the initial analysis the leverage ratio is broken down by maturity. We analyse how access to the green bond markets affects the long and short-term components of debt that firms choose to maintain. Here the results indicate that green bonds factor into the overall leverage ratio through long-term debt. The final part of the analysis focuses on the interaction between debt categories and thereby introduces green bonds to the literature on debt heterogeneity (Rauh and Sufi, 2010; Colla et al., 2013). We find that green bond issuers on average spread their debt financing across a more diverse set of instruments compared to conventional bond issuers. We are, to our knowledge, the first who examine the specific interaction between corporate green bonds and debt financing decisions. Very recent work by Flammer (2021) has served as a foundation for several arguments presented throughout the thesis. The novelty of our findings highlights the importance of academic research being undertaken within this area of finance. It thus presents an opportunity for future work as the green bond market shows little sign of slowing down.

EducationsMSc in Advanced Economics and Finance, (Graduate Programme) Final Thesis
Publication date2021
Number of pages133
SupervisorsRamona Westermann