The market reaction to green bond issuance: Evidence from China

Wang, Jiazhen; Chen, Xin; Li, Xiaoxia; Yu, Jing; Zhong, Rui

doi:10.1016/j.pacfin.2020.101294

Cited by 175 publications

(71 citation statements)

References 18 publications

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“…Conversely, other studies find that investors appear to behave indifferently when choosing between green and conventional bonds from the United States (US) municipal sector over the period from June 2013 to July 2018 (Larcker and Watts 2020). 3 On the Chinese primary bond market, the risk premium on green bonds has an inverse relationship with an issuer's ability to signal credibility, such as the provision of third-party certification (Wang et al 2019), or an underwriter with a high social responsibility profile (Wang et al 2020). Furthermore, bond, issuer, and macroeconomic drivers of conventional bonds have similar effects on green bonds.…”

Section: Background and Literature Reviewmentioning

confidence: 99%

“…These include: the bond rating, time of issuance, issue size, debt principal, nature of property rights, return on net assets of the issuer, and the prevailing market interest rate at the time of issuance. Moreover, green bonds issued by publicly listed corporations in China trade at a considerable discount to conventional bonds ( −33 bps) (Wang et al 2020), and contrast with the slightly positive greenium (0.16 bps) from the non-financial corporate sector over all EM countries (Fatica et al 2019). Agliardi and Agliardi (2019) use an SEM in their analysis of the secondary bond market, and argue that the size of the greenium is positively affected by: (1) more volatile asset prices, (2) more effective green technology that the bond finances, and (3) higher sustainability advantages, mitigating adverse effects on asset values caused by environmental damage.…”

Section: Background and Literature Reviewmentioning

confidence: 99%

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Drivers of green bond issuance and new evidence on the “greenium”

2021

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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.

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Section: Background and Literature Reviewmentioning

confidence: 99%

Section: Background and Literature Reviewmentioning

confidence: 99%

Drivers of green bond issuance and new evidence on the “greenium”

2021

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“…Flammer (2013Flammer ( , 2019 finds that the issuance of green bonds yields a positive announcement returns and improvements in long-term value operating and environmental performance in addition to an increase in green innovations and ownership by long-term and green investors. Other authors (Wang et al, 2020;Zhou and Cui, 2019) explore the impact of green bond issuance not only on companies' stock prices, but also on financial performance and corporate social responsibility (CSR). The empirical results indicate positive effects also on innovation capacity and companies' CSR.…”

Section: Literature Review and Hypothesismentioning

confidence: 99%

Corporate Green Bond and Stock Price Reaction

Cioli¹,

Colonna²,

Giannozzi³

et al. 2021

IJBM

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The aim of this paper is to investigate the investors’ reaction to environmental actions taken by companies such as the issues of “green bond”. We conduct an event study around the announcement of green bond issuances for all publicly traded companies in the World in the period 2013-2019 (the largest period in literature on this field). Using CARs, we investigate the stock price behavior to green bond issues for 414 listed companies and we demonstrated significant stock price increases around the announcement date of first-time green bond issues. For second issues, the positive stock price reaction to eco-friendly initiatives decreases while it completely disappears for the subsequent issues. From the management perspective, green bond issue seems an eco-friendly action with decreasing marginal benefits, because after the first issue, the market is already aware about the firm’s commitment to green projects.

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“…In terms of policy implications, our results suggest that green bond financing results in financial incentives for sponsors that contribute to align the objectives of companies that develop energy projects with those established at a national and supranational level that are environmentally friendly. The positive effect of the issuance of green bonds for sponsors adds to the positive influence for shareholders found by previous studies [32,33,43,44]. However, future research should extend the scope of the analysis to other sectors and other geographical areas in order to determine the prevalence of these results.…”

Section: Resultsmentioning

confidence: 81%

“…In this vein, [32] states that green bonds have negligible diversification benefits for investors in corporate and treasury markets, and considerable diversification benefits for investors in stock and energy markets. Additionally, [33] find positive announcement stock returns for green bond new issues. This is consistent with the stakeholder value maximization theory that corporate commitment to sustainable financing increases firm value in the long term and, therefore, is favored by shareholders.…”

Section: Theoretical Backgroundmentioning

confidence: 92%

On the Effect of Green Bonds on the Profitability and Credit Quality of Project Financing

Alonso‐Conde

Rojo-Suárez

2020

Sustainability

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The relatively recent green bond market is increasingly attracting interest at the technical, regulatory, and academic research levels. Although a considerable body of research on green bonds focuses on the investor’s perspective, this study takes the perspective of a project finance sponsor to analyze whether there is a direct financial incentive for issuing green bonds in contrast to other types of financing. In order to measure the impact of green bond financing on the profitability and solvency of environmentally friendly investments, we study the sensitivity of the financial performance of a well-established project finance investment—the Sagunto regasification plant—to shifts in its financial structure. In particular, we develop a base case that allows us to study the impact of green financing compared to other financial structures typically used in project finance, under different scenarios. Our results show that in all cases, the internal rate of return (IRR) for shareholders is higher when green bonds instead of bank loans are issued to finance investments. Additionally, in the vast majority of the scenarios, green bond financing results in higher average debt service coverage ratios. Consequently, our results suggest that green bond financing constitutes a strong financial incentive for sponsors, which can help align their objectives with those of public authorities.

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The market reaction to green bond issuance: Evidence from China

Cited by 175 publications

References 18 publications

Drivers of green bond issuance and new evidence on the “greenium”

Drivers of green bond issuance and new evidence on the “greenium”

Corporate Green Bond and Stock Price Reaction

On the Effect of Green Bonds on the Profitability and Credit Quality of Project Financing

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