The impacts of liquidity measures and credit rating on corporate bond yield spreads: evidence from China’s green bond market

ABSTRACT

This article investigates the nexus among the liquidity measures, credit ratings, and the yield spreads of green corporate bonds in China using panel data analysis and the generalized method of moments (GMM). Lower market liquidity, a lower credit rating level, and a shorter issued age are more significant for enlarging the yield spreads of ordinary corporate bonds than those of green corporate bonds. Compared with the AAA credit rating level, the illiquidity ratio, nontrade frequency ratio, zero-trade volume, yield volatility, interest rate margin and issued age have more significant influences on the yield spreads of ordinary corporate bonds than those of green corporate bonds. The liquidity and credit rating have greater differences in affecting the yield spreads of green corporate bonds with different issuance terms.

KEYWORDS:

• Green corporate bonds
• yields spread
• liquidity
• credit rating
• generalized method of moments

JEL CLASSIFICATION:

• C23
• M21
• O16

Highlights

1. Green corporate bonds (GCB) have lower market liquidity.

2. Lower market liquidity measures have significant impacts on the GCB yield spread.

3. Credit rating has a significantly negative effect on GCB yield spreads.

4. Liquidity and credit rating have greater impacts on ordinary corporate bonds.

5. Liquidity has different effects on different-term GCB yield spreads.

Acknowledgments

The authors are grateful for the research support from the following foundations: the National Natural Science Foundation of China (71673236); the New Type Key Professional Think Tank of Zhejiang Province, China; and the Zhejiang Provincial Natural Science Foundation of China (LY18G010014 and LY16G030017).

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71673236].