China’s green bond evolution: addressing financial constraints for sustainable development Available to Purchase

Purpose: This paper examines the relationship between green bond issuance and corporate financial constraints, focusing on firms in China. It explores how financial constraints drive firms to issue green bonds, investigates the potential cost advantages (greenium) and evaluates the impact on firms’ environmental performance. The study also highlights the spillover effects of green bond issuance on industry peers, contributing to a broader understanding of how green finance influences both corporate behavior and industry-wide sustainability practices. By providing insights into the economic and environmental implications of green bonds, the paper contributes to the evolving field of sustainable finance.

Design/methodology/approach: The study utilizes empirical analyses, including regression models and propensity score matching (PSM), to investigate the impact of green bond issuance on corporate financial constraints, debt financing costs, environmental performance and industry spillover effects. The sample includes firms listed on the Shanghai and Shenzhen Stock Exchanges that issued green bonds between 2016 and 2021. The research employs a variety of methods, including PSM for robust matching of green and non-green bond issuers and logit models to account for the infrequent nature of green bond issuance. The analysis further explores the relationship between green bonds and financial and environmental outcomes.

Findings: The study finds that firms facing financial constraints are more likely to issue green bonds, which in turn help alleviate these constraints. Green bonds also exhibit lower yield spreads compared to conventional bonds, reflecting a “greenium” that reduces borrowing costs. Additionally, green bond issuance positively influences corporate environmental performance, including improved environmental disclosure, awareness and green innovation. There are also significant spillover effects on peer firms within the same industry, driving broader adoption of sustainable practices. These findings underscore the economic and environmental advantages of green bonds, offering valuable insights into sustainable finance dynamics in China.

Originality/value: This paper provides unique insights into the impact of green bonds within the Chinese market, distinguishing it from previous studies in other regions. It links financial constraints to green bond issuance, revealing how these instruments help firms access capital while promoting sustainability. The study also uncovers the greenium phenomenon in China, highlighting lower borrowing costs for green bond issuers. Additionally, the research demonstrates the positive influence of green bonds on corporate environmental performance and the spillover effects on peer firms. The findings are significant for policymakers, practitioners and investors seeking to advance sustainable finance practices and corporate environmental responsibility.