Green Bond Effects on the CDS Market

The paper investigates CDS spreads reaction to the type of issued bonds, green or conventional. We use an event study based on the CDS spreads reaction for the green bond issuance. First, we find that there is a green bond effect. That is, CDS spreads decline when a green bond is issued, indicating risk reduction and lower debt cost, but increase when a conventional bond is issued. Moreover, we show that the effect is, on average, twice as negative as the coefficients for conventional bonds issued prior to the first green bonds. Second, we analyze the case of multiple issuances. The firm's credibility and reputation is strongly enhanced with a three or more green bond issuance, leading to the appearance of an additional green discount. Finally, we show that the positive reaction of the CDS spread, observed in the case of green bond issuance, exists also for conventional bonds that are issued after the third green issuance. Thus, the reputation effect leads to a spillover effect, where the CDS spread significantly decline when conventional bonds are also issued