Politická ekonomie 2022, 70(6):684-710 | DOI: 10.18267/j.polek.1363

Estimation of green bond premiums On the Chinese secondary market

Karel Janda ORCID...b, Evzen Kocenda ORCID...a, b, c, Anna Kortusovaa, Binyi Zhang ORCID...a
a Institute of Economic Studies, Faculty of Social Science, Charles University, Prague, Czech Republic
b Prague University of Economics and Business, Faculty of Finance and Accounting, Prague, Czech Republic
c Institute of Information Theory and Automation, Czech Academy of Sciences, Prague, Czech Republic

Green bonds have gained prominence on China's capital market as tools that help to fuel the transition to a climate-resilient economy. Although the issuance volume on the Chinese green bond market has been growing rapidly in recent years, the impact of the green label on bond pricing has not been studied adequately. Therefore, this paper investigates whether this newly developed financial instrument offers investors in China an attractive yield compared to other equivalent conventional bonds. By matching green bonds with their conventional counterparts and subsequently applying a fixed-effects estimation, our empirical results reveal a significant green bond yield premium of 1.8 basis points (bps) on average on the Chinese secondary market. As compared to Climate Bond Initiative (CBI) certified green bonds, we find that investors are more willing to accept lower yields (pay higher prices) to include People's Bank of China (PBOC) certified green bonds into their portfolio management. Thus, we argue that Chinese green investors prefer PBOC certified green bond over CBI certified green bonds on the Chinese market. Driven by pro- environmental preference, investors are also found to be willing to pay a higher price for green bonds issued by environmental, social and governance (ESG) performance-rated issuers. Our results point to some practical implications for investors and policymakers.

Keywords: Green finance; green bonds; ESG; China
JEL classification: G11, G12, Q56

Received: October 31, 2021; Revised: April 14, 2022; Accepted: May 5, 2022; Prepublished online: November 5, 2022; Published: January 25, 2023  Show citation

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Janda, K., Kocenda, E., Kortusova, A., & Zhang, B. (2022). Estimation of green bond premiums On the Chinese secondary market. Politická ekonomie, 70(6), 684-710. doi: 10.18267/j.polek.1363
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