Does Green Bonds Attract Investor Preference?

In recent years,with the awakening of people’s awareness and widespread concern about the climate crisis,green and sustainable development has become a global hot topic.At present,nearly 200 countries around the world,including China,have signed the United Nations Framework Convention on Climate Change(the Paris Agreement),pledging to integrate environmental,social and governance(ESG),and to balance climate change and socio-economic development in order to achieve sustainable human development.Green bonds have been growing rapidly in China’s bond market since 2016 when the People’s Bank and seven other ministries and commissions issued the "Guidance on Building a Green Financial System",which included support for green bonds as one of the important elements.So,under the environment of favorable green finance policies,do investors prefer green bonds? What is the transmission mechanism and the context in which it works,and do green bonds effectively perform the function of capital allocation and truly promote the flow of capital to green and sustainable development? However,current academic studies have not reached a consistent conclusion on the relationship between green bonds and credit spreads,and there are few studies on the direct mechanisms and specific contexts between the two.Based on the above issues,this thesis explores the relationship between green bonds and credit spreads by combining normative and empirical methods,using green bonds and corporate bonds issued in China’s bond market from 2016 to 2020 as research samples.This thesis firstly elaborates on the current development status and theoretical background of green bonds,including the rise and development of green bonds,relevant policies and theories of green bonds,etc.,in order to provide a clearer and more comprehensive research background;secondly,it collates and analyzes the relevant literature on the market reaction of green bonds and the factors influencing credit spreads,and sorts out and summarizes the current research status and development trend of related issues;then,based on the information asymmetry theory,signaling theory and social identity theory,as well as the related literature,a series of analyses are conducted and the research hypotheses of this thesis are proposed;finally,a model is established with reference to the existing studies,and empirical research methods such as descriptive statistical analysis,mean-variance analysis and multiple regression analysis are conducted to test the research hypotheses,and the empirical results are analyzed to draw relevant research conclusions and policy inspirations.It is found that green bonds have lower credit spreads compared to regular bonds,and this finding still holds after robustness tests such as changing explanatory variable measures,PSM tests,instrumental variable method test,and placebo tests.The mechanism test finds that green bonds reduce the issuer’s financing cost mainly through lower information risk.Further examination of bond characteristics reveals that compared to bonds with fewer bond issues,shorter bond maturities and put provision,bonds with more bond issues,longer bond maturities and without put provision are more likely to gain investor preference for the "green" attributes of green bonds,and the credit spreads of green bond issues are lower.Examining the characteristics of intermediaries and bond issuers,it is find that green bonds are more likely to be favored by investors,as evidenced by lower credit spreads,when underwriters are less reputable and bond issuers are smaller.The economic consequences study finds that the issuance of green bonds facilitates bond issuers to carry out more green innovation and green utilization activities.The findings of the thesis provide empirical evidence for improving the efficiency of green bond fund allocation and promoting green sustainable development.Theoretically,based on the theory of information risk,this thesis examines the relationship between green bonds and credit spreads in China in different contexts from the differences of bonds,intermediaries and bond-issuing entities,which enriches the research on the economic consequences of green bonds.Based on the perspective of investors’ risk perception,this thesis systematically examine the direct influence mechanism of green bonds on credit spreads based on bond ratings and certification by authoritative institutions,which complements the direct factors in the formation of credit spreads of green bonds;based on green innovation and green application,this thesis examine whether the funds raised by green bonds are really used in green projects,which further enriches the research on fund allocation efficiency in capital market.In practice,examining the specific causes of the formation of investor preferences helps provide empirical evidence for debt issuers to reduce information risks,improve the financing advantages of green bonds,and promote the smooth issuance of green bonds;examining the relationship between green bonds and credit spreads and the use of funds raised by green bonds in green-related aspects from the perspectives of capital inflow and capital outflow,respectively,helps further improve China’s green financial market and optimize capital allocation efficiency in the capital market.At the same time,taking green bonds as an example,this thesis explores the problems that enterprises,as the main body of economic activities,may face in the process of participating in sustainable development,which helps to provide targeted policy suggestions to enhance the motivation and ability of enterprises to carry out green activities,so as to promote sustainable development and alleviate the climate crisis.