Africa is one of the most vulnerable continents to climate change. Climate and sustainability-linked bonds can provide funding to African governments and corporations for projects that help to mitigate climate change, combat biodiversity loss, and foster sustainable development. However, less than 0.3% of the global environmental, social, governance (ESG) bond issuance volume is devoted to projects in Africa. Based on the entire universe of 107 African ESG bonds from 42 governmental and corporate issuers over the period 2010-2023, this paper establishes that ESG bonds provide benefits to both issuers and investors in terms of lower spreads and volatility. Our econometric results highlight that greenwashing is a valid concern for investors in African ESG bonds and certification of ESG bonds makes a difference vis-a-vis the self-labeling of green bonds. Non-certified ESG bonds do not offer similar benefits compared to certified ones. Green macro-financial policy and suitable regulation to prevent greenwashing can foster African ESG-bond markets.

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.

In this paper, we investigate how European households changed the diversity of their financial portfolios in response to the Great Financial and the subsequent European Debt Crisis. For this purpose we apply a Difference-in-Differences (DiD) approach estimated as a correlated random effects (CRE) model to six waves of the Survey of Health, Ageing and Retirement in Europe (SHARE). We find that households holding risky assets responded to the twin European financial crises with lower levels of diversity in their financial portfolios. We also reveal their flight to liquid and safe bank accounts at the expense of mutual funds and stocks. The downward trend peaked in 2015. Only after 2015, when the Eurozone debt crisis was definitely over, those households’ financial portfolios became more diverse again. The findings are highly robust across gender, income, and wealth quartiles, as well as across most countries. Such behavior is most likely a mistake with negative wealth consequences for the households and for the society. Programs to increase portfolio diversity literacy could support households in avoiding such behavior in the next crisis.

We extend the Black-Litterman (BL) approach to incorporate tail dependency in portfolio optimization and estimate the posterior joint distribution of returns using vine copulas. Our novel copula-based BL (CBL) model leads to flexibility in modeling returns symmetric and asymmetric multivariate distribution from a range of copula families. Based on a sample of the Eurostoxx 50 constituents (also for S&P 100 as robustness check), we evaluate the performance of the suggested CBL approach and portfolio optimization technique using out-of-sample back-testing. Our empirical analysis and robustness check indicate better performance for the CBL portfolios in terms of lower tail risk and higher risk-adjusted returns, compared to the benchmark strategies.

This paper explores the effect of a firm's reputation of being a green bond issuer on its financing costs. Using a sample of 73 listed Swedish real estate companies issuing in total about 1500 bonds over the period from 2011 till 2021, differencein- difference analyses and instrumental variable estimations are applied to identify the causal impact of frequent green vis-à-vis frequent non-green bond issuing on a firm's cost of capital and credit rating. The paper argues that it is repetitive issuance which lowers a firm's cost of capital, while the effects from first or one-time green bond issuance is 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 has no effect on the cost of equity capital.

This paper links banking system development to the colonial and legal history of African countries. Based on a sample of 40 African countries from 2000 to 2018, our empirical findings show a significant dependence of current financial institutions on the inherited legal origin and the colonization type. Findings also reveal that current financial legal institutions are not major determinants of banking system development, and that institutional development and governance quality are more important. A high share of government spending relative to GDP also positively affects banking system development in African countries.

In recent years, commercial banks have substantially reduced the number of their branch offices. We address the question of whether or not the increased distance to lenders caused by branch office closures translates into a lower credit supply for small and medium sized enterprises (SMEs). We use a unique dataset based on 33,000 loan contracts from a state-owned Swedish bank designed to support credit-constrained SMEs, and relate loan size and the interest rate to the number of nearby commercial bank offices. We use an IV strategy to account for potential endogeneity of the number of banks in a region. In line with previous studies, we find that interest rates increase with distance, while loan size decreases with distance. Thus, a larger number of local bank offices increases the local credit supply, and thereby reduces credit constraints of nearby SMEs.

This paper examines whether a premium for green bonds, called “greenium”, found in previous studies, exists in primary and secondary bond markets. Using a universe of about 2000 green and 180,000 non-green bonds from 650 international issuers, we apply both propensity score matching and coarsened exact matching to determine a sample of conventional bonds that is most similar to the sample of green bonds. We find that green bonds have larger issue sizes and lower rated issuers, on average, compared to conventional bonds. The estimates show that the yield for green bonds is, on average, 15–20 basis points lower than that of conventional bonds, both on primary and secondary markets, thus a “greenium” exists.

Did Corporate Social Responsibility investing benefit shareholders during the COVID-19 pandemic crisis? Distinguishing between downside tail risk and upside reward potential of stock returns, we provide evidence from 5,073 stocks listed on stock markets in ten countries. The findings suggests that better ESG ratings are associated with lower downside risk, but also with lower upside return potential. Thus, ESG ratings help investors to reduce their risk exposure to the market turmoil caused by the pandemic, while maintaining the fundamental trade-off between risk and reward.

This paper investigates the effects of ownership patterns on bank cost and profit efficiencies taking a sample of 607 commercial banks operating in 53 African countries during the period 2005-2015. Using pooled and modified true fixed effects (TFE) stochastic frontier panel approaches, the following results are obtained: First, foreign-owned banks are more profit and cost efficient than their domestic peers. Second, privately-owned banks outperform state-owned banks. These findings result not only from internal efficiencies but also from differences in other bank-level and country-level factors. Specifically, larger and listed banks with many years of operations in host African countries, and favorable macro-economic conditions improve the cost and profit efficiencies of foreign-owned and private-owned banks (foreign and domestic) compared to state-owned domestic banks. Other findings of this study show that ownership concentration (block-holding) has adverse effects for profit and cost efficiencies of banks.