Research On The Pricing Mechanism Of Green Bonds

Since its inception in 2007,the green bond market has expanded at more than 50% compounded annual growth rate.China launched the first official green bond in 2016 and has become the secondlargest market around the world.As the market continues to grow,it is essential to obtain a better understanding of green bonds’ pricing mechanism.This study uses a sample of 317 green bonds and 270 conventional bonds issued in China for the 2016-2019 period to explore the pricing mechanism of green bonds comprehensively.We first conduct an empirical analysis of the price difference between green and conventional bonds.After that,the paper has analyzed further the factors affecting the pricing of a green bond.Since the bond prices in the sample are all 100 yuan,we decide to use their coupon rates as an alternative research object.The empirical results indicate that,on the one hand,the average coupon rate of green bonds is 55 BP lower than that of their conventional counterparts.On the other hand,Shanghai interbank offered rate has a significant positive effect on the green bond’s rate while bond issuer’s registered capital,bond issuance scale,credit rating,and third-party certification all have a reverse effect.Besides,the result also shows that the registered capital could reduce the reverse effect of third-party certification to the green bond’s coupon rate.According to the results obtained,this paper has the following suggestions: 1)The government,issuers,and investors should work together to promote the development of China’s green bond market;2)Large-scale enterprises should consider their advantages in issuing GBs when financing for green projects,while small-scale ones should strive for third-party certification;3)Issuers need to arrange the green bonds’ maturity and scale reasonably;4)The government shall take measures to improve credit rating standards and increase the credibility of credit rating agencies;5)The construction of domestic third-party evaluation and certification system shall be speeded up.