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Sustainable Debt and Capital Costs: The Impact of Green Bonds on Corporate Financing

Wongwai, Pongpon LU and Yang, Yuqi LU (2025) NEKN02 20251
Department of Economics
Abstract
This thesis investigates whether European industrial firms issuing green bonds enjoy a borrowing-cost advantage, so called a “greenium.” Using a sample of 1,305 euro-denominated issues from 2014 to mid-2025, we estimate fixed-effects OLS regressions of yield-to-maturity on a green-bond indicator, controlling for tenor, issuer size, leverage, interest coverage, credit rating, industry, issuer, and year (clustered by issuer). In our main specification, the green-bond coefficient implies a yield reduction on the order of two dozen basis points. To probe the mechanical link between coupon rate and YTM, we employ three alternative treatments, where all deliver near-zero greenium estimates except when coupon is omitted, where green bonds appear... (More)
This thesis investigates whether European industrial firms issuing green bonds enjoy a borrowing-cost advantage, so called a “greenium.” Using a sample of 1,305 euro-denominated issues from 2014 to mid-2025, we estimate fixed-effects OLS regressions of yield-to-maturity on a green-bond indicator, controlling for tenor, issuer size, leverage, interest coverage, credit rating, industry, issuer, and year (clustered by issuer). In our main specification, the green-bond coefficient implies a yield reduction on the order of two dozen basis points. To probe the mechanical link between coupon rate and YTM, we employ three alternative treatments, where all deliver near-zero greenium estimates except when coupon is omitted, where green bonds appear to have 23 bps lower the cost of borrowings than conventional bonds. Complementing these regressions, one-to-one propensity-score matching yields an ATT of roughly –9 bps, and a clustered bootstrap produces an average ATT near –6.5 bps. Across every approach, the observed yield discount is economically modest and statistically fragile. These findings refine earlier reports of a greenium (e.g. Gianfrate & Peri 2019; Zerbib 2019) by showing that, once firm- and time-invariant traits, bond fundamentals, and liquidity effects are fully accounted for (Larcker & Watts 2020; Maltais & Nykvist 2020), the green label alone does not confer a meaningful reduction in corporate borrowing costs. (Less)
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author
Wongwai, Pongpon LU and Yang, Yuqi LU
supervisor
organization
course
NEKN02 20251
year
type
H1 - Master's Degree (One Year)
subject
keywords
Greenium, Green Bonds, Environmental, Socially Responsible Investing (SRI), Municipal Bonds
language
English
id
9194967
date added to LUP
2025-09-12 10:46:51
date last changed
2025-09-12 10:46:51
@misc{9194967,
  abstract     = {{This thesis investigates whether European industrial firms issuing green bonds enjoy a borrowing-cost advantage, so called a “greenium.” Using a sample of 1,305 euro-denominated issues from 2014 to mid-2025, we estimate fixed-effects OLS regressions of yield-to-maturity on a green-bond indicator, controlling for tenor, issuer size, leverage, interest coverage, credit rating, industry, issuer, and year (clustered by issuer). In our main specification, the green-bond coefficient implies a yield reduction on the order of two dozen basis points. To probe the mechanical link between coupon rate and YTM, we employ three alternative treatments, where all deliver near-zero greenium estimates except when coupon is omitted, where green bonds appear to have 23 bps lower the cost of borrowings than conventional bonds. Complementing these regressions, one-to-one propensity-score matching yields an ATT of roughly –9 bps, and a clustered bootstrap produces an average ATT near –6.5 bps. Across every approach, the observed yield discount is economically modest and statistically fragile. These findings refine earlier reports of a greenium (e.g. Gianfrate & Peri 2019; Zerbib 2019) by showing that, once firm- and time-invariant traits, bond fundamentals, and liquidity effects are fully accounted for (Larcker & Watts 2020; Maltais & Nykvist 2020), the green label alone does not confer a meaningful reduction in corporate borrowing costs.}},
  author       = {{Wongwai, Pongpon and Yang, Yuqi}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Sustainable Debt and Capital Costs: The Impact of Green Bonds on Corporate Financing}},
  year         = {{2025}},
}