The Market Reaction to Green Bond Issuance: Evidence from China

Posted: 27 Sep 2019 Last revised: 25 Feb 2020

See all articles by Jiazhen Wang

Jiazhen Wang

Zhejiang University - College of Economics

Xin Chen

Shandong University

Xiaoxia Li

Shandong University

Jing Yu

The University of Sydney; Financial Research Network (FIRN)

Rui Zhong

The University of Western Australia - UWA Business School

Date Written: February 18, 2020

Abstract

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.

Keywords: Green bonds; Bond underwriters; Social reputation; Stock market reaction

JEL Classification: G12; G14; G24

Suggested Citation

Wang, Jiazhen and Chen, Xin and Li, Xiaoxia and Yu, Jing and Zhong, Rui, The Market Reaction to Green Bond Issuance: Evidence from China (February 18, 2020). Pacific-Basin Finance Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3455754 or http://dx.doi.org/10.2139/ssrn.3455754

Jiazhen Wang

Zhejiang University - College of Economics ( email )

Yuquan Campus 38 Zheda Road
Hangzhou, Zhejiang 310027
China

Xin Chen

Shandong University ( email )

27 Shanda Nanlu
South Rd.
Jinan, Shandong 250100
China

Xiaoxia Li

Shandong University ( email )

27 Shanda Nanlu
South Rd.
Jinan, Shandong 250100
China

Jing Yu (Contact Author)

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Rui Zhong

The University of Western Australia - UWA Business School ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

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