Financial Structure and Profitability of Green Bond Issuers: Evidence Across Financial and Non-Financial Firms

Abstract

Green bonds represent a significant financing instrument for climate mitigation and environmentally sustainable investments. Despite their growing importance, empirical evidence remains limited regarding the joint influence of firm-specific financial characteristics and macroeconomic conditions on the profitability of green bond issuers (GBIs). This study examines the associations between capital structure, liquidity, firm size, and macroeconomic conditions and GBI profitability in both financial and non-financial sectors. An unbalanced panel dataset comprising 221 financial firms and 1099 non-financial firms that issued green bonds between 2014 and 2023 is utilised. Two-way fixed-effects models to estimate the relationships between the explanatory variables and return on assets (ROA), and Driscoll–Kraay standard errors ensure robust statistical inference. The findings indicate that higher debt-to-asset ratios significantly reduce profitability for both financial and non-financial green bond issuers, whereas leverage negatively affects profitability exclusively for financial firms. Excess liquidity correlates with lower profitability, particularly among non-financial issuers. Macroeconomic conditions also matter: GDP growth is positively associated with profitability across both sectors, while higher interest rates are negatively associated with profitability. These results underscore the significance of robust financial structures and favourable macroeconomic environments in supporting the financial performance of firms issuing green bonds. By focusing on issuer-level financial performance rather than bond pricing, this study provides evidence of the relationships between internal financial structures, external economic conditions, and profitability of firms financing environmentally sustainable investments. The findings offer some guidance for green bond issuers aiming to optimise capital structure, liquidity, and resilience to macroeconomic fluctuations while sustaining financial performance.