Factors driving retail investors´ appetite for corporate green bonds: empirical case survey study of a Nordic corporate mutual bond fund

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School of Business | Master's thesis
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In collaboration with a Nordic corporate mutual bond fund, I conducted an empirical field survey study on the fund´s retail investor clientele. Participating fund members were provided with real decision-making power regarding the fund´s future investment policy as the fund management committed to either include corporate green bonds to the fund´s currently non-green portfolio or alternatively, to exclude green bonds in case a majority decision in the survey vote was reached. The survey questions were designed to gather data on the sample´s demographics, investor preferences, financial beliefs as well as prior investing behavior. This paper studies, by conducting a multinomial regression analysis, which underlying factors influence retail investors´ appetite for corporate green bonds. Firstly, the tested demographic variables include investor age, gender, nationality, income level and educational level. Secondly, the tested preferences -related variables include investor social preferences, preferences for environmental policies as well as desire for social signaling. Thirdly, tested variables on investors´ financial beliefs concern the expected financial returns of corporate green bonds relative to conventional bonds. The relative explanatory power of the tested variables with respect to the sample´s appetite for corporate green bonds is presented in the form of relative-risk ratios. I find investor social preferences to be the strongest predictor in retail investor appetite for corporate green bonds. I further find the gender effect as well as investor income level to hold statistical significance as the female sample and wealthier respondents are on average more likely to vote in favor of including corporate green bonds. I find the observed majority vote in favor of the green bond inclusion to remain robust even after controlling for participants´ social signaling desire, financial beliefs and demographics. Moreover, I find the level of appetite for corporate green bonds to be positively correlated with retail investors´ political voting preferences for pro-environmental policies as well as preferences for higher bond credit ratings and external third-party certification.
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Kaustia, Markku
corporate green bonds, sustainable development goals, social preferences, financial beliefs, demographics, cross-country, environmental, green premium
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