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Where's the green bond premium? Evidence from China

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  • Li, Quan
  • Zhang, Kai
  • Wang, Li

Abstract

Recently, China has rapidly established the second largest green bond market in the world through a series of policy support measures, and the effects of these policies are the focus of widespread attention. This paper is the first to compare the difference in yield spreads between labeled green bonds and non-labeled green bonds in the primary market in China. We find that although labeled and non-labeled green bonds meet the same green certification standard, green characteristics alone cannot reduce the financing costs of issuers; rather, only officially certified labeled green bonds can effectively reduce the yield spread. Moreover, this paper finds that due to policy guarantee expectations, labeled green bonds can effectively reduce their financing costs under a high-credit-risk environment. Further analysis reveals significant differences in issue pricing between green bonds with different purposes.

Suggested Citation

  • Li, Quan & Zhang, Kai & Wang, Li, 2022. "Where's the green bond premium? Evidence from China," Finance Research Letters, Elsevier, vol. 48(C).
    • Handle: RePEc:eee:finlet:v:48:y:2022:i:c:s1544612322001970
    DOI: 10.1016/j.frl.2022.102950
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    Cited by:

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    3. Burak Büyükoğlu, 2022. "Analysis of the Relationship between Green Bonds and Equity Markets by Cross-Quantilogram Method," Journal of Research in Economics, Politics & Finance, Ersan ERSOY, vol. 7(4), pages 855-868.
    4. Fu, Yating & He, Lingyun & Liu, Rongyan & Liu, Xiaowei & Chen, Ling, 2024. "Does heterogeneous media sentiment matter the ‘green premium’? An empirical evidence from the Chinese bond market," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 1016-1027.
    5. Wu, Ruirui & Qin, Zhongfeng, 2024. "Asymmetric volatility spillovers among new energy, ESG, green bond and carbon markets," Energy, Elsevier, vol. 292(C).
    6. Qi, Shaozhou & Pang, Lidong & Qi, Tianbai & Zhang, Xiaoling & Pirtea, Marilen Gabriel, 2024. "The correlation between the green bond market and carbon trading markets under climate change: Evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 203(C).
    7. Hu, Xin & Zhu, Bo & Lin, Renda & Li, Xiru & Zeng, Lidan & Zhou, Sitong, 2024. "How does greenness translate into greenium? Evidence from China's green bonds," Energy Economics, Elsevier, vol. 133(C).
    8. Gan, Xiao Dong & Zheng, Xiao Yu & Li, Cong Cong & Zhu, Gui Qin, 2024. "Green bond issuance and trade credit access: Evidence from Chinese bond market," Finance Research Letters, Elsevier, vol. 60(C).
    9. Dong, Xiao & Yu, Mingzhe, 2024. "Green bond issuance and green innovation: Evidence from China's energy industry," International Review of Financial Analysis, Elsevier, vol. 94(C).
    10. Xu, Runguo & Dong, Peng, 2023. "Underwriter reputation and asset-backed securitization pricing," Finance Research Letters, Elsevier, vol. 58(PB).
    11. Wang, Congcong & Wang, Chong & Long, Huaigang & Zaremba, Adam & Zhou, Wenyu, 2024. "Green bond credit spreads and bank loans in China," International Review of Financial Analysis, Elsevier, vol. 94(C).
    12. Tang, Ying & Wang, Biliang & Pan, Ningning & Li, Zhiyong, 2023. "The impact of environmental information disclosure on the cost of green bond: Evidence from China," Energy Economics, Elsevier, vol. 126(C).
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    More about this item

    Keywords

    Yield spread; Labeled green bonds; Non-labeled green bonds; Green premium;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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