Asad Arsya Brilliant Fani, Ruslan Prijadi

The Impact of Green Bonds on Firm Value and the Role of ESG: Revisiting the Stakeholder Value Maximization Theory

Introduction

The impact of green bonds on firm value and the role of esg: revisiting the stakeholder value maximization theory . Explore how green bond issuance positively impacts firm value. This study revisits stakeholder value maximization theory, using Tobin's Q and DD to show ESG initiatives drive corporate value.

Abstract

This study evaluates managers’ motivations in decision-making and whether they aim to maximize value or meet environmental and social pressures at the expense of value. The authors utilize green bonds as a treatment and measure changes in firm value data using Tobin’s Q, controlling for times and individual fixed effects and several company characteristics. This research documents the positive impact of issuing green bonds on a firm's value using the difference-in-differences (DD) method. Our findings are confirmed over the aggregate sample and most of the industry subsample, whereas we observed negative associations between green bonds and firm value only in the industrial subsample (comprising industrial and commercial services, industrial goods, and transportation). These findings align with the hypothesis of the stakeholder value maximizing theory. So, we suggest that, based on the data we analyzed about green bond issuances, companies choose to issue green bonds to increase their overall value.

Review

This study tackles a highly relevant and timely question concerning the motivations and financial implications of corporate sustainability initiatives, specifically through the issuance of green bonds. By revisiting the stakeholder value maximization theory, the authors propose to investigate whether managerial decisions to engage in green finance genuinely enhance firm value or are primarily driven by external environmental and social pressures, potentially at the expense of shareholder returns. The chosen methodology, employing green bonds as a treatment and measuring changes in Tobin's Q using a difference-in-differences (DD) approach, indicates a strong empirical design aimed at establishing causal relationships. A notable strength of this research lies in its robust methodological framework, which utilizes the difference-in-differences method while meticulously controlling for time and individual fixed effects, alongside various company characteristics. This approach significantly enhances the credibility and causal interpretability of the findings. The core result—that issuing green bonds generally has a positive impact on a firm's value—is compelling and is largely consistent across both the aggregate sample and most industry subsamples. The identification of a negative association exclusively within the industrial subsample (comprising industrial and commercial services, industrial goods, and transportation) is a particularly interesting and nuanced finding that adds depth, suggesting that the value proposition of green bonds is not uniform across all sectors. These results offer strong empirical support for the stakeholder value maximization theory, positing that green initiatives can strategically contribute to overall firm value. While the abstract clearly articulates the study's significant contributions and robust findings, a full paper would benefit from a more detailed exploration of the mechanisms through which green bonds influence firm value, thereby enriching the theoretical discussion beyond simply "aligning with the hypothesis" of stakeholder value maximization. Further elaboration on the specific factors contributing to the observed negative associations in the industrial subsample would also provide invaluable insights into industry-specific nuances and potential mitigating strategies. Overall, this research promises to be an impactful contribution to the literature on sustainable finance, corporate governance, and strategy, offering valuable empirical evidence that challenges conventional notions of a trade-off between sustainability and financial performance.

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