Greenium of green securitization: Does external certification matter?

Area of Science:

• Environmental Finance
• Financial Markets
• Sustainable Investments

Background:

• Green asset-backed securities (ABS) face higher financing costs due to information asymmetry and greenwashing risks.
• External certifications are sought by issuers to attract investors, but their financial impact remains unclear.

Purpose of the Study:

• To investigate the impact of green certification and financial intermediary reputation on the yield discount of green ABS.
• To analyze how information asymmetry and issuer credit risk moderate these certification effects.

Main Methods:

• Empirical analysis of 588 green ABS issued in China between 2016 and 2022.
• Comparison of yields between green ABS and paired non-green ABS.
• Examination of the moderating roles of information asymmetry and credit risk.

Main Results:

• Both green certification and financial intermediary reputation lower the 'greenium' (yield discount) of green ABS.
• These certifications act as positive signals and reduce greenwashing concerns, particularly in non-financial sectors and on stock exchanges.
• Financial intermediary certification's pricing effect is amplified by information asymmetry and credit risk, while green certification's effect is diminished.

Conclusions:

• External certifications are financially beneficial for green ABS by enhancing investor confidence and reducing perceived risks.
• The effectiveness of different certification types varies based on market conditions and issuer-specific risks.
• Findings support policies to improve green financial market efficiency and facilitate the global low-carbon transition.