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Purpose

This study aims to examine the impact of green bond issuance on firms’ cost of capital, market volatility and leverage levels, focusing on the financial benefits and stability associated with green bond issuance.

Design/methodology/approach

Utilizing a global data set of green bond issuances from 2012 to 2022, the study applies the Propensity Score Matching-Difference-in-Differences (PSM-DID) methodology to compare firms that issue green bonds with those that do not, isolating the effects of green bond issuance on financial metrics.

Findings

The study finds that firms issuing green bonds experience a significant reduction in their overall cost of capital, both short and long-term. Green bond issuance is linked to lower weighted average cost of capital (WACC) components, including debt costs, tax-adjusted WACC and reduced short-term and long-term debt expenses. These firms exhibit lower market risk, as indicated by lower beta values, signifying enhanced financial stability and reduced volatility. They also benefit from improved tax efficiencies and lower interest expenses, reducing their tax burdens.

Practical implications

The findings suggest that green bonds offer substantial financial advantages, including lower capital costs, reduced risk exposure and more excellent market stability while promoting sustainability. This offers valuable guidance for businesses, encouraging them to use green bonds to improve financial performance and support sustainability efforts.

Originality/value

To the best of the authors’ knowledge, this study is one of the first to examine the global impact of green bonds on the cost of capital, incorporating extended variables and a comprehensive data set to offer new insights into the financial and sustainability benefits of green bond issuance.

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