Does green bond issuance reduce the cost of bank loans? Evidence from China

We examine how the issuance of green bonds affects the cost of bank loans. We find that an initial bond issuance reduces loan costs by 55 basis points (bps), with an even larger reduction of 66 bps for firms issuing green bonds for the first time. These effects are more pronounced among firms with greater information asymmetry and lower bond financing costs. We explore two potential mechanisms behind these results: a signaling channel, where bond issuance helps mitigate information asymmetry, and an alternative financing channel, where access to bond markets enhances a firm's bargaining power with banks. Overall, our findings reveal spillover effects from bond to bank financing, offering empirical insight into how direct financing influences the cost of indirect financing in the Chinese market.