Issuer Motivations for Corporate Green Bond Offerings

Despite the substantial increase in green bond issuance over the past decade, evidence on the drivers and costs of corporate green bond issuance is lacking. We develop four novel hypotheses on the determinants of firms’ choice between green and conventional bonds, by connecting the four distinct features of green bonds with relevant theories. We test these hypotheses on a sample of green and conventional bonds issued by US, Western European and Chinese firms between 2014 and 2021, using linear probability models and alternative approaches. Consistent with our hypotheses, we find that firms with higher reputational gains from being seen as green and a stronger focus on eco-innovation are more likely to issue green instead of conventional bonds. Conversely, we obtain only limited evidence that green bond issuance is driven by the net benefits of additional disclosure and no evidence that green bond issuers cater to time-varying investor preferences for corporate greenness. Our results, which survive several robustness tests, are relevant for corporate managers, investors and bond market regulators.