Is corporate governance important for green bond performance in emerging capital markets?

Abstract

This paper examines the relationship between corporate governance mechanisms and their impact on green bond yield spreads for companies operating in emerging capital markets. The role of boards in mitigating ESG risks is well studied for developed countries, but there is no evidence of the impact of corporate governance on green finance for emerging capital markets. To fill in the gap, we use a unique dataset constructed with data from Thomson Reuters Refinitiv Eikon, World Bank, and Central Intelligence Agency (CIA). We study 283 green bond issues by 125 companies from 16 emerging markets with assigned ESG scores for the period between 2017 and 2022. Our findings contribute to the literature in several ways. First, we provide new evidence for the significant impact of corporate governance on green bond yield spreads in emerging capital markets. Second, we demonstrate that issuers with higher CEO power will enjoy higher green bond yields. Third, board size matters for investors in corporate green bonds from emerging capital markets and has a negative impact on the yield spread. Moreover, in the research model we account for the specific features of the country’s institutional environment, such as the quality of the country’s regulatory system, the capacity of the central authority and the nature of its legal system. Our findings provide evidence that only government effectiveness and rule of law indexes are significant drivers of green bond spreads, while the regulatory quality index is not.