Where's the green bond premium? Evidence from China

Recently, China has rapidly established the second largest green bond market in the world through a series of policy support measures, and the effects of these policies are the focus of widespread attention. This paper is the first to compare the difference in yield spreads between labeled green bonds and non-labeled green bonds in the primary market in China. We find that although labeled and non-labeled green bonds meet the same green certification standard, green characteristics alone cannot reduce the financing costs of issuers; rather, only officially certified labeled green bonds can effectively reduce the yield spread. Moreover, this paper finds that due to policy guarantee expectations, labeled green bonds can effectively reduce their financing costs under a high-credit-risk environment. Further analysis reveals significant differences in issue pricing between green bonds with different purposes.