The market reaction to green bond issuance: Evidence from China

• Published in: Pacific-Basin finance journal Vol. 60; p. 101294
• Main Authors: Wang, Jiazhen, Chen, Xin, Li, Xiaoxia, Yu, Jing, Zhong, Rui
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.04.2020
• Subjects: Bond underwriters; Green bonds; Social reputation; Stock market reaction; G24; Green bonds; Bond underwriters; G12; G14; Social reputation; Stock market reaction
• ISSN: 0927-538X; 1879-0585
• DOI: 10.1016/j.pacfin.2020.101294

This paper provides the first evidence of the debt and stock market reaction to corporate green bond issuance in the simultaneously largest developing economy and largest emerging debt market, China. Utilizing a most comprehensive sample of Chinese green bonds, we document a pricing premium of corporate green bonds relative to conventional bonds. The economic magnitude of the Chinese green bond pricing premium is greatly larger than that of an international green bond documented in prior studies. The pricing premium of corporate green bonds is most pronounced for new issues from high corporate social responsibility (CSR) issuers and underwriters. It is also stronger for corporate issuers with less ownership concentration and held by long-term institutional investors. Further analysis reveals positive announcement stock returns for green bond new issues, consistent with the stakeholder value maximization theory that corporate engagement in sustainable financing practice increases firm value in a long run and thus is favored by shareholders. •This paper provides the first evidence of the debt and stock market reaction to green bond issuance in China, the largest home country for green bonds as of 2018.•We document a robust pricing premium of corporate green bonds relative to otherwise•This study is novel in uncovering the important roles of issuers, underwriters and bond investors in determining the green bond price premium.•Stock market investors positively react to the announcements of green bond new issues.