Abstract
The measurement of premium remains a major challenge in the literature. This study explores the effects of green bond usage on green bond premium using green bonds data extracted from Bloomberg MSCI green bond index between 2007 and 2022. The study leverages fixed effects and pooled regression models to examine whether the green bond premium varies systematically with the issuer's specified use of the green bond's proceeds. The empirical results provide evidence of a positive association between the use of proceeds of green bonds and the premium on green bonds. The green premium of an average of 1–5 basis points across government and corporate issuers is observed. Our findings not only establish the influence of green bond usage on green premium, but also provides further evidence of how issuers can achieve borrowing cost advantage if the proceeds are targeted at environmentally friendly projects that align with investor preferences.
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