Rating Regulatory Mechanism Effect Promotion under the Environmental Issuance Effects: Based on the Incentive Difference Hotelling Model

Hanyi Zhao,Luping Zhang,Xiangyun Zhou,Yixiang Tian,Wei Meng

doi:10.3390/su13105368

Hanyi Zhao, Luping Zhang + Show 3 more

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https://doi.org/10.3390/su13105368

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Abstract

Issuance effects are regarded as one of the most important aspects referring to the regulatory guidelines of green corporate bond ratings. This paper developed a new incentive difference Hotelling model, considering four major factors, i.e., the direct effect of issuance, the indirect effect of issuance, the reputation of rating agencies and the regulatory penalties. In this model, how the direct effect and the indirect effect impact the dual rating mechanism and the integrated rating mechanism was discussed. Numerical experiments were conducted to explore the regulatory effects on the two defined mechanisms in different situations. The results demonstrate that under each mechanism, the direct and indirect effects of issuance indirectly improve the effectiveness and efficiency of regulation by increasing the environmental benefit information content in the rating information, and the indirect effect has a greater impact. Moreover, it provides specific recommendations for the design of a regulatory regime.

Highlights

While China’s green bonds market is a relative latecomer, it has grown rapidly since its inception
The results indicate that the dual rating mechanism has a better regulatory effect when the rating accuracy does not reach equilibrium, and the direct issuance effect and the indirect are both considered interval presented
The results show that under the condition of Proposition 2, the integrated rating mechanism has a better regulatory effect when the direct issuance effect is in certain conditions

Summary

Introduction

While China’s green bonds market is a relative latecomer, it has grown rapidly since its inception. It is still at an early stage, and further improvements are needed to increase the issuance of green corporate bonds. One of the big obstacles to issuance of green corporate bonds in developing countries is lack of applicable regulations [1]. Compared with the international green bonds market, the two Standard documents, Green Bond Principle (GBP) and Climate Bonds Standard (CBS), are spontaneously formed and voluntarily participated by market entities. The initial formation is derived from the spontaneous organization of the market, which is “bottom-up” and can form an orderly competitive market. China’s green bond rating standard, mainly a series of guide files issued by the People’s Bank of China, the National Development and Reform Commission, securities regulatory commission, the stock exchange and relevant regulators, is the “top-down”

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