How does greenness translate into greenium? Evidence from China's green bonds

Abstract

Although green bonds serve as one of the most promising tools for low-carbon transition, the existing studies fail to thoroughly examine the pricing effects of green attributes in the greenbond (GB) markets. Using data on green and conventional bonds in China's primary market from 2016 to 2022, this paper explores how greenness translates into a greenium in the GB markets. The empirical findings show that green labeling bonds have a greenium compared to conventional bonds. However, the greenium varies based on investor perception. Drawing on the theories on attribute centrality, our study differentiates the central and peripheral attributes of greenness, considering the greenness of both the issue and the issuer. We find that the issuers can benefit from the extent/credibility of the issue's greenness due to the mitigation of information asymmetry. Furthermore, the greenness of the issuer also contributes to the greenium because of investors' pro-environmental preferences. More interestingly, the issuer's greenness is the central attribute and dominates the investors' perceptions of greenness. Overall, our research facilitates an understanding of how investors form greenness perceptions of green bonds and contributes to the development of GB markets.