Can Chinese firms benefit from issuing carbon–neutral bonds?

Abstract To support China’s low-carbon transition and green growth, carbon–neutral bonds have been issued since February 2021. Our survey of carbon–neutral bond issuance by Chinese firms from inception to December 2024 shows that these initial carbon–neutral bonds have significantly lower yield spreads, implying lower financing costs than conventional bonds issued by the same firms and green bonds issued during the same period. An event study analysis shows that stock returns increased after the announcement of carbon–neutral bonds. Stock liquidity is identified as the possible mechanism through which carbon–neutral bond issuance may improve stock returns, although stock liquidity could be reduced if a firm with good environmental, social, and governance (ESG) ratings issues carbon–neutral bonds. Our findings that a negative carbon–neutral premium exists highlight the role that future carbon–neutral bonds could play in benefiting Chinese firms issuing such bonds.