Research On Factors Determining The Risk Premium Of Corporate Green Bonds In The European Market

As a financial instrument with both "bond" and "green”attributes,green bonds are playing an increasingly significant role in the global financial markets.The risk premium of green bonds directly reflects the financing costs of bond issuers and the capital gains of investors.Therefore,a reasonable risk premium has become the key to the successful issuance and trading of green bonds.Looking at the development of global green bonds,Europe,as the earliest financial market for green bonds and green finance,has absolute leading advantages and research value in terms of issuance volume,types of issues,and issuer coverage.More importantly,compared with green bonds issued by governments and financial institutions,the scale and number of green bonds issued by European companies have also started rising since 2017.Therefore,this paper studies the influencing factors of the risk premium for the issuance of green corporate bonds in Europe and aims to provide a basis for determining a more reasonable risk premium,and hopefully to provide factual basis and reference for the future issuance of green corporate bonds in China.Based on the macro and micro cross-section data of green bond issuance in Europe,this paper measures the main factors determining the risk premium of European green corporate bonds from three aspects:liquidity risk,credit risk and green risk.Using multivariate linear regression model,this paper analyses 163 green corporate bonds issued in the European market after 2007.After adding control variables,the study found that:as a green attribute,third-party green certification has a positive impact on the risk premium of green corporate bonds;bond factors affecting the risk premium include credit ratings,coupon rates,issuance size and bond maturities;issuer attributes influencing the risk premium include the issuer’s leverage ratio and return on equity;the macro factor affecting the green bond risk premium is the current risk free rate.By focusing on the European market,this paper further narrows the scope of the research so that the selected factors could be analyzed more comprehensively,which would help further explore possible implications for the development of China’s green bond market.