Do bond attributes affect green bond yield? Evidence from Indian green bonds
-
DOIhttp://dx.doi.org/10.21511/ee.14(2).2023.05
-
Article InfoVolume 14 2023, Issue #2, pp. 60-68
- Cited by
- 500 Views
-
182 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Over the years, green finance tools have gained considerable attention with the increased concern to achieve sustainability in the economy. Green bonds are one such new innovative green finance tool embodied with bonds and green attributes. However, research on the Indian green bond is relatively modest. Thus, this study aims to analyze the impact of bond attributes on green bond yield. The study retrieves green bond data from the Bloomberg and Climate Bonds Initiative databases from 2015 to 2022. To test the framed hypotheses, the study employs a panel regression technique with a random effect model. The findings of the study show a significant positive effect of bond ratings (β = 2.80926, p < 0.05) on green bond yield based on the argument that good-rated bonds serve as collateral in the security market. On the contrary, the result also reveals a significant negative effect of bond maturity (β = –0.327296, p < 0.05) and bond label (β = –3.16480, p < 0.05) on green bond yield. The results based on the observation suggest that when the certified bond is issued, this signals the greenness of the bond in the market and attracts high demand, whereas the long maturity ensures the green project construction for a longer period, resulting in a lower bond value. Thus, empirical findings reveal that bond attributes are the major factors in influencing bond yield. The obtained results serve as a prerequisite for potential issuers, investors, and policymakers to further popularize the green bond in the country.
- Keywords
-
JEL Classification (Paper profile tab)Q56, C33
-
References50
-
Tables4
-
Figures0
-
- Table 1. Variable descriptions
- Table 2. Variance inflation factor
- Table 3. Summary statistics
- Table 4. Regression results showing the impact of bond attributes on green bond yield
-
- Abhilash, Shenoy, S. S., Shetty, D. K., & Lobo, L. S. (2023). Green Bond as an Innovative Financial Instrument in the Indian Financial Market: Insights from Systematic Literature Review Approach. SAGE Open, 13(2), 21582440231178783.
- Arellano, M. (1987). Computing robust standard errors for within-groups estimators. Oxford bulletin of Economics and Statistics, 49(4), 431-434.
- Bag, D. (2020). Risk premium of corporate bonds, residual errors estimation in presence of idiosyncratic factors. Wealth: International Journal of Money, Banking & Finance, 9(1), 52-58.
- Baldi, F., & Pandimiglio, A. (2022). The role of ESG scoring and greenwashing risk in explaining the yields of green bonds: A conceptual framework and an econometric analysis. Global Finance Journal, 52, 100711.
- Barua, S., & Chiesa, M. (2019). Sustainable financing practices through green bonds: What affects the funding size? Business Strategy and the Environment, 28(6), 1131-1147.
- Bhatnagar, S., & Sharma, D. (2022). Evolution of green finance and its enablers: A bibliometric analysis. Renewable and Sustainable Energy Reviews, 162, 112405.
- Braga, J. P. (2020). The green bonds market performance and the role of the public sector – literature review. Mimeo.
- CBI. (2021). Sustainable Debt Market Summary H1 2021. Climate Bonds Initiative.
- COP27. (2022). The Sharm El-Sheikh Climate Implementation Summit.
- Dash, A. (2021). IRFC – the beginning of a green era. Emerald Emerging Markets Case Studies, 11(1), 1-30.
- Fatica, A. S., & Panzica, R. (2020). Green bonds as a tool against climate change? Business Strategy and the Environment, 30(5), 2688-2701.
- Febi, W., Schäfer, D., Stephan, A., & Sun, C. (2018). The impact of liquidity risk on the yield spread of green bonds. Finance Research Letters, 27, 53-59.
- Ferrer, R., Shahzad, S. J. H., & Soriano, P. (2021). Are green bonds a different asset class? Evidence from time-frequency connectedness analysis. Journal of Cleaner Production, 292, 125988.
- Glomsrød, S., & Wei, T. (2018). Business as unusual: The implications of fossil divestment and green bonds for financial flows, economic growth and energy market. Energy for Sustainable Development, 44, 1-10.
- Grishunin, S., Bukreeva, A., Suloeva, S., & Burova, E. (2023). Analysis of Yields and Their Determinants in the European Corporate Green Bond Market. Risks, 11(1), 14.
- Gruber, J. W., & Kamin, S. B. (2012). Fiscal Positions and Government Bond Yields in OECD Countries. Journal of Money, Credit and Banking, 44(8), 1563-1587.
- Gün, M., & Kutlu, M. (2021). A New Approach of Energy Financing: The Yields of Green Bonds in Emerging Economies. In S. Yüksel, & H. Dinçer (Eds.), Strategic Approaches to Energy Management (pp. 89-102). Cham: Springer.
- Hachenberg, B., & Schiereck, D. (2018). Are green bonds priced differently from conventional bonds? Journal of Asset Management, 19, 371-383.
- Hausman, J. A. (1978). Specification tests in econometrics. Econometrica, 46(6), 1251-1271.
- Hsiao, C. (2014). Analysis of Panel Data. Econometric Society Monographs (3rd ed.). Cambridge University Press.
- Hyun, S., Park, D., & Tian, S. (2020). The price of going green: the role of greenness in green bond markets. Accounting and Finance, 60(1), 73-95.
- ICMA. (2017). The Green Bond Principles 2017.
- Jin, J., Han, L., Wu, L., & Zeng, H. (2020). International Review of Financial Analysis The hedging effect of green bonds on carbon market risk. International Review of Financial Analysis, 17, 101509.
- Kumar, S., Sharma, D., Rao, S., Lim, W. M., & Mangla, S. K. (2022). Past, present, and future of sustainable finance: insights from big data analytics through machine learning of scholarly research. Annals of Operations Research, 1-44.
- Li, Z., Kuo, T. H., Siao-Yun, W., & The Vinh, L. (2022). Role of green finance, volatility and risk in promoting the investments in renewable energy resources in the post-covid-19. Resources Policy, 76, 102563.
- Loffler, K. U., Petreski, A., & Stephan, A. (2021). Drivers of green bond issuance and new evidence on the “greenium”. Eurasian Economic Review, 11(1), 1-24.
- MacAskill, S., Roca, E., Liu, B., Stewart, R. A., & Sahin, O. (2021). Is there a green premium in the green bond market? Systematic literature review revealing premium determinants. Journal of Cleaner Production, 280, 124491.
- Mathews, J. A. (2011). Naturalizing capitalism: The next great transformation. Futures, 43(8), 868-879.
- Mathews, J. A., & Kidney, S. (2012). Financing climate-friendly energy development through bonds. Development Southern Africa, 29(2), 337-349.
- Naeem, M. A., Adekoya, O. B., & Oliyide, J. A. (2021). Asymmetric spillovers between green bonds and commodities. Journal of Cleaner Production, 314, 128100.
- Neogi, S., & Ghosh, B. K. (2022). Evaluation of Crop Diversification on Indian Farming Practices: A Panel Regression Approach. Sustainability, 14(24), 16861.
- Oguntuase, O. J., & Windapo, A. (2021). Green bonds and green buildings: New options for achieving sustainable development in Nigeria. In T. G. Nubi, I. Anderson, T. Lawanson, & B. Oyalowo (Eds.), Housing and SDGs in Urban Africa (pp. 193-218). Springer, Singapore.
- Park, D., Park, J., & Ryu, D. (2020). Volatility Spillovers between Equity and Green Bond Markets. Sustainability, 12(9), 3722.
- Parker, J. A. (2018). Heteroskedasticity. In Section 8, Theory and Practice of Econometrics (Econ 312: Spring 2018). Oregon, United States: Reed College.
- Pham, L. (2016). Is it risky to go green? A volatility analysis of the green bond market. Journal of Sustainable Finance and Investment, 6(4), 263-291.
- Prajapati, D., Paul, D., Malik, S., & Mishra, D. K. (2021). Understanding the preference of individual retail investors on green bond in India: An empirical study. Investment Management and Financial Innovations, 18(1), 177-189.
- Ray, S., & Bisbey, J. (2020). Financing infrastructure in Asia through bonds and capital markets. Journal of Infrastructure, Policy and Development, 4(1), 87-120.
- Russo, A., Mariani, M., & Caragnano, A. (2021). Exploring the determinants of green bond issuance: Going beyond the long-lasting debate on performance consequences. Business Strategy and the Environment, 30(1), 38-59.
- Sarkar, D., & Sheth, A. (2022). Development of sustainable public–private partnership model for bus rapid transit system in Western India: a case study approach. Innovative Infrastructure Solutions, 7, 1-15.
- Simeth, N. (2022). The value of external reviews in the secondary green bond market. Finance Research Letters, 46, 102306.
- Su, E., & Tokmakçıoğlu, K. (2023). Determinants of bid-ask spread in emerging sovereign bond markets. Journal of Asset Management, 24, 346-352.
- Tao, H., Zhuang, S., Xue, R., Cao, W., Tian, J., & Shan, Y. (2022). Environmental Finance: An Interdisciplinary Review. Technological Forecasting and Social Change, 179, 121639.
- Teti, E., Baraglia, I., Dallocchio, M., & Mariani, G. (2022). The green bonds: Empirical evidence and implications for sustainability. Journal of Cleaner Production, 366, 132784.
- UNFCCC. (2015). Paris Agreement.
- United Nation (UN). (2015). Transforming our world: the 2030 Agenda for Sustainable Development.
- Verma, A., & Agarwal, R. (2020). A Study of Green Bond Market in India: A Critical Review. IOP Conference Series: Materials Science and Engineering, 804(1).
- Verma, R. K., & Bansal, R. (2021). Stock Market Reaction on Green-Bond Issue: Evidence from Indian Green-Bond Issuers. Vision, 27(2), 264-272.
- Yang, Q., Du, Q., Razzaq, A., & Shang, Y. (2022). How volatility in green financing, clean energy, and green economic practices derive sustainable performance through ESG indicators? A sectoral study of G7 countries. Resources Policy, 75, 102526.
- Zhang, D., Zhang, Z., & Managi, S. (2019). A bibliometric analysis on green finance: Current status, development, and future directions. Finance Research Letters, 29, 425-430.
- Ziebart, D. A., & Reiter, S. A. (1992). Bond ratings, bond yields and financial information. Contemporary Accounting Research, 9(1), 252-282.