Scaling up Investment in Corporate Green Bonds

Abstract

This study examines how various bond- and firm-specific characteristics influence green bond performance, measured by bond yield. Several significant findings are revealed using cross-sectional data on green bonds issued between 2013 to 2023. By employing a self-compounded dummy variable, it is proven that green bonds issued by mission-oriented companies can offer lower yields to investors. Furthermore, the results imply that bonds from repeat issuers perform better, which is especially true for issuers with frequent issues. These findings are consistent with the signaling argument commonly used in literature. The demonstrated lower cost of capital could help scale up the corporate green bond market by incentivizing companies to issue green bonds on a regular basis, and to become mission oriented.