The Reputation Effect of Repeated Green‐Bond Issuance and Its Impact on the Cost of Capital

ABSTRACT This study explores the effect of frequent green‐bond issuance on a firm's financing costs. Using a sample of listed Swedish real estate companies issuing a total of 1074 bonds over the period from 2011 to 2021, difference‐in‐differences analyses and instrumental variable estimations are applied to identify the causal impact of frequent green‐bond vis‐à‐vis frequent non‐green‐bond issuance on a firm's cost of capital and credit rating. The paper argues that repetitive issuance lowers a firm's cost of capital, while the effects of first or one‐time green‐bond issuance are the opposite. In line with the reputation capital hypothesis, issuing green bonds even lowers the firm's cost of equity capital, while issuing non‐green bonds does not affect the cost of equity.