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Financing for sustainability: Empirical analysis of green bond premium and issuer heterogeneity

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  • Qiaoyan Sheng

    (Nanjing University of Information Science and Technology)

  • Xuan Zheng

    (Nanjing University of Information Science and Technology)

  • Nian Zhong

    (Nanjing University of Information Science and Technology)

Abstract

More recently, investors’ preference for green bonds is of particular interest for researchers. The possible non-pecuniary motive in sustainable finance can be identified by the green bond premium. But no consensus has been achieved owing to differences in samples and market settings. This paper specifically focuses on the estimation of the green bond premium in China. We introduced three issuance motivation theories to explain the drivers of green premium and convinced them through a set of empirical tests. The propensity score matching method was employed to claim that compared with matched conventional bonds, green bonds are priced at an average negative premium of 7.8bps, implying that green projects may be issued at a lower cost. Considering that a financial group has a higher negative premium than a corporate group, green financing for sustainable development is still led by indirect finance. Furthermore, empirical results convince that a negative premium is pronounced for state-owned enterprises and varies across the financial and corporate groups. Central SOEs have more advantage in raising funds than local SOEs. In addition, the effect of ownership on the green premium will significantly change if bond issues with a third-party verification. The role of verification is important in reducing information asymmetry and avoiding greenwashing behavior. We suggest that financial resources need to be properly allocated to the real enterprises through third-party verification or government supportive measures.

Suggested Citation

  • Qiaoyan Sheng & Xuan Zheng & Nian Zhong, 2021. "Financing for sustainability: Empirical analysis of green bond premium and issuer heterogeneity," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 107(3), pages 2641-2651, July.
    • Handle: RePEc:spr:nathaz:v:107:y:2021:i:3:d:10.1007_s11069-021-04540-z
    DOI: 10.1007/s11069-021-04540-z
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    References listed on IDEAS

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    2. Husain, Afzol & Karim, Sitara & Sensoy, Ahmet, 2024. "Financial fusion: Bridging Islamic and Green investments in the European stock market," International Review of Financial Analysis, Elsevier, vol. 94(C).
    3. Seeram Ramakrishna & Wayne Hu & Rajan Jose, 2023. "Sustainability in Numbers by Data Analytics," Circular Economy and Sustainability, Springer, vol. 3(2), pages 643-655, June.
    4. Zhou, Yuwen & Tian, Lixin & Yang, Xiaoguang & Wan, Bingyue, 2024. "Robust green Schumpeterian endogenous growth model and spatial Kuznets curve," Energy Economics, Elsevier, vol. 133(C).
    5. Wang, Xue & Liu, Qingyuan, 2024. "Information disclosure and ESG rating disagreement: Evidence from green bond issuance in China," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    6. Umar, Zaghum & Hadhri, Sinda & Abakah, Emmanuel Joel Aikins & Usman, Muhammad & Umar, Muhammad, 2024. "Return and volatility spillovers among oil price shocks and international green bond markets," Research in International Business and Finance, Elsevier, vol. 69(C).
    7. Pham, Linh & Nguyen, Canh Phuc, 2021. "Asymmetric tail dependence between green bonds and other asset classes," Global Finance Journal, Elsevier, vol. 50(C).
    8. Mertzanis, Charilaos, 2023. "Energy policy diversity and green bond issuance around the world," Energy Economics, Elsevier, vol. 128(C).
    9. 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).
    10. Tan, Xiujie & Dong, Hanmin & Liu, Yishuang & Su, Xin & Li, Zixian, 2022. "Green bonds and corporate performance: A potential way to achieve green recovery," Renewable Energy, Elsevier, vol. 200(C), pages 59-68.
    11. Umar, Zaghum & Abrar, Afsheen & Hadhri, Sinda & Sokolova, Tatiana, 2023. "The connectedness of oil shocks, green bonds, sukuks and conventional bonds," Energy Economics, Elsevier, vol. 119(C).
    12. Dong, Hanmin & Zhang, Lin & Zheng, Huanhuan, 2024. "Green bonds: Fueling green innovation or just a fad?," Energy Economics, Elsevier, vol. 135(C).
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    14. Monika Hadaś-Dyduch & Blandyna Puszer & Maria Czech & Janusz Cichy, 2022. "Green Bonds as an Instrument for Financing Ecological Investments in the V4 Countries," Sustainability, MDPI, vol. 14(19), pages 1-48, September.

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