Green Bond Yield Determinants in Indonesia: The Moderating Role of Bond Ratings

Abstract

This study investigates the relationship between bond-specific factors, macroeconomic variables, and green bond (GB) yields issued in the Indonesian bond market. The study sample includes 468 GBs issued by 30 issuers from both corporate and government entities from 2018 to 2023. This research method uses panel regression techniques with the random effects models to test hypotheses on two estimation model specifications. The study results reveal that interest, inflation, and exchange rates are significantly and positively related to GB yields. Bond-specific factors have different impacts, where coupons and maturity have a positive relationship with GB yields, while bond issuers have an adverse effect. Bond rating and issuance size as specific factors are shown to have no impact on GB yields. In the model with the moderating role of rating, the study’s results show that coupons still directly impact GB yields positively, while the influence of maturity is negative. The interaction of maturity and rating positively impacts GB yield. Different findings suggest that interactions with coupons weaken the impact of ratings on GB yields. The results of this study contribute to the financial literature on the determinants of the GB market and the role of bond ratings as a moderator. The study also provides new insights into Indonesia’s GB market, which includes developing countries. The findings can also help companies, investors, regulators, and researchers better understand the GB market.