This paper aims to investigate why firms issue pandemic bonds. Specifically, it examines whether pandemic bond announcements have shareholder-value implications, whether pandemic bonds are associated with lower financing costs, and what mechanisms underlie these patterns. This study evaluates competing explanations, including signaling, cost-of-capital, pandemic-containment and government-support channels.
Using a comprehensive sample of corporate pandemic bonds issued in China during February–April 2020, this study examines stock-market reactions using an event-study methodology. Pricing effects are assessed by matching each pandemic bond to a comparable non-pandemic bond issued by the same firm and estimating yield-spread differences using fixed-effects regressions. Potential mechanisms are explored through analyses of signaling effects, pandemic-containment activities and government support, proxied by state-owned bank participation.
Pandemic bond announcements are associated with positive stock-market reactions, with cumulative abnormal returns ranging from 1.33% to 1.71%. Pandemic bonds also exhibit yield spreads that are 8.9–18 basis points lower than those of comparable conventional bonds. Yield discounts are more pronounced when a larger share of bond proceeds is allocated to pandemic-related activities and when state-owned banks participate more actively in bond offerings.
To the best of the author’s knowledge, this study is among the first to systematically examine the corporate pandemic bond market and its implications for both equity-market reactions and bond pricing. It extends the literature on socially responsible debt beyond green bonds by evaluating a crisis-specific financing instrument. The findings highlight the potential role of state-owned bank participation in lower financing costs and suggest how capital markets may support public-policy objectives during periods of economic and public-health stress.
