Do green bonds boost corporate investment efficiency? Evidence from China’s mandatory bond market

Green bonds have emerged as important tools for environmental finance, but their broader impact on corporate investment decisions is still unclear. This study examines whether green bond issuance affects overall corporate investment efficiency using data from Chinese non-financial enterprises issuing bonds between 2010 and 2020. Employing a difference-in-differences approach that exploits China’s mandatory green bond approval process as a quasi-natural experiment, we compare investment patterns between green bond and conventional bond issuers. Our research shows that green bonds significantly boost investment efficiency through two primary channels. First, they help overcome financing limitations by supplying steady, long-term funding. Second, they improve debt management by reducing enterprises’ dependence on short-term loans for projects that require long-term capital. These effects prove particularly beneficial for heavy polluters facing urgent environmental transformation pressures and for firms operating in financially developed regions with sophisticated market mechanisms. The findings provide important insights into how environmental finance policies can advance sustainability goals while improving corporate financial performance, offering practical guidance for green finance policy design in emerging markets.