Adora Lei, Colby CollegeFollow

Date of Award

2024

Document Type

Honors Thesis (Open Access)

Department

Colby College. Economics Dept.

Advisor(s)

Professor Yang Fan

Second Advisor

Professor Ekaterina Seregina

Abstract

This paper investigates the impact of green bond issuances on the financial performance of U.S. energy firms, the largest greenhouse gas-emitting sector. To explore the incentives for adopting green projects among firms with the most significant margin for improvement, I focus on Gross Profit Margin (GPM) and the Tobin’s Q Ratio as key indicators of profitability and valuation. Using a dataset of 462 companies, I analyze green and conventional corporate bond issuances from 2010 onwards in the context of their financial reports. The findings reveal that green bonds positively influence long-term valuation, with Tobin’s Q showing significant increases from the second year post-issuance, reflecting growing investor confidence in sustainable practices. However, immediate profitability gains measured by GPM are not statistically significant raising concerns about the influence of the use of funds. By disaggregating the analysis by project types of the green bonds, I discover that solar projects yield short-term profitability gains in the year of issuance, while wind projects face long-term challenges, negatively affecting their valuation from the third year onwards. Energy storage projects demonstrate robust initial profitability in the year of issuance, and substantial long-term market valuation benefits. This study expands on current green bond literature, highlighting the importance of project identification in bond analysis and addressing the need for improvement in an industry crucial to the environmental effort.

Keywords

Green bonds, Energy sector, Corporate Finance, Sustainable Finance, Green Finance, Financial performance

Adora Lei

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