Green bonds, financing constraints, and green innovation

Abstract

This study explores the impact of green bond issuance on green innovation and green technologies. With the deepening of China's supply-side reform, the government and enterprises are paying increasing attention to sustainable development. Green bond, a fixed-income instrument specifically earmarked to raise money for climate and environmental projects, is also playing an increasingly important role in China's economy as the government guides enterprises on a sustainable development path. The modeling and analysis of the difference-in-differences method show that enterprises can significantly improve their green innovations by issuing green bonds. It is hereby assumed that (1) the issuance of green bonds by enterprises can improve their green technology and green innovations by easing their financing constraints; (2) both the external environment and the internal governance structure of an enterprise can affect the effect of green bond issuance on green innovation; (3) enterprises with different characteristics are exposed to different green innovations when issuing green bonds. Herein, the empirical results support the above-mentioned hypotheses. Specifically, enterprises can significantly advance and increase their investment in green technologies and environmental-friendly innovations by issuing green bonds. A greater environmental regulation intensity of the province in which the enterprise is located indicates a greater effect of issuing green bonds on green innovation, while a greater check-and-balance ownership structure suggests a greater impact of issuing green bonds on green innovation. The effect of the green bond issuance on green innovation is more significant for enterprises in high financial development regions and those large-scale enterprises.