Institutional Investors’ Willingness to Pay for Green Bonds: A Case for Shanghai

Abstract

The issuance of green bonds has been increasing since 2016 in China, and the number of papers covering the topic is growing. In previous studies on greenium, not much has been investigated from the institutional investors’ perspective. The study estimates the institutional investors’ level of greenium by surveying the institutional investors in Shanghai, China, from October 23 to 1 November 2021, using the double-bound dichotomous choice (DBDC) contingent valuation method (CVM). The study also analyzes the effects of variables that are known to be important for the green bond based on previous studies. The study identifies that there is a greenium level of 0.47%. Among the seven variables tested with logit regression models, the credit and currency of the bond had a positive effect on the greenium. The study provides helpful insights for issuers’ strategic planning and could be a stepping stone to increasing issuance not only for the Chinese green bond market but also for the global green bond market.

Investigating Factors Affecting Institutional Investors’ Green Bond Investments: Cases for Beijing and Shenzhen

“…Our results indicate that bonds' liquidity and redemption periods had a positive impact on the greenium. Since liquidity and redemption periods did not show an influence on the greenium in the study conducted for the case of Shanghai [21], it could be that the effects of these factors on the institutional investors' decision to invest in GBs are different among different regions. For the analysis of certified labels, our results suggest that labeling has no impact on the investors' WTP for GBs.…”

“…The survey was performed with a help of a Chinese survey company, Wenjuan. This company was also used in studies such as Mei and Brown [49] and Zenno and Aruga [21]. A stratified sampling was conducted by the company to select respondents who met our criteria.…”

“…Hyun and Li [32] focus on the Chinese GB primary market and find a greenium of 0.40%, which is higher than that reported in previous studies. Zenno and Aruga [21] conduct a survey of institutional investors in Shanghai, China, based on the methodology used in Aruga [30], and analyze the greenium from the standpoint of institutional investors, finding that greenium is 0.47%.…”

“…Zenno and Aruga [21] analyzed institutional investors in Shanghai and found that the issuer's credit rate and the currency of the bond tend to increase the greenium. However, this study did not analyze in detail whether the institutional investors' decision to invest in GBs is affected by the type of currency for issuing GBs.…”

“…Chang et al [22] analyzed the impact of China's credit rates on greenium; however, there has not been much investigation on the connection between certain credit rates and greenium from the institutional investors' viewpoint. According to Zenno and Aruga [21], certified labeling has no appreciable influence on greenium. In this study, we re-examine whether labeling influences the greenium.…”