The effectiveness of the green bond instrument on stimulating firms' green innovation performance: A comparative study based on Chinese market

Abstract

Green bonds have become an indispensable part of green finance system, offering a market-based solution for financing green innovation (GI). This study examines the impact of green bond issuance (GBI) on GI performance using Chinese listed firms' data from 2007 to 2019. The results show that GBI can promote the GI for both bond issuing firms and their industrial peers, with the impact generated on the former to be more significant. Compared with their peers, the issuing firms tend to focus more on green innovation quality, while the peers are more likely to achieve green innovation increment. Also, the heterogeneity analysis shows that external supervision is important to effectively trigger GI incentives of GBI. The relationship between GBI and GI is more prominent among the state-owned enterprise (SOE), non-heavily polluting firms, and in the eastern region. Furthermore, GBI promotes the GI performance of both issuing and peer firms through different channels. It provides the issuing firms with more R&D investment while enhances the capital utilisation efficiency among peers. Consequently, it is suggested that effective polies should be set in place to ensure that the desired positive outcomes of GBI are achieved, and firms are guided towards more sustained development path.