Air pollution levels enhance green bond investment: green preference and environmental perception thresholds

Environmental change is a crucial factor influencing green investment, and air pollution affects green assets through green preference. This study analyzes the impact of air pollution levels on the green bond using the threshold model. Since investors have physiological thresholds for perceiving air pollution, green preferences change investor behavior once air pollution reaches a certain threshold. The empirical results confirm that at low air pollution levels, weak physical stimuli are not sufficient to induce strong environmental perceptions, resulting in an insignificant role for green preference. However, when air pollution exceeds the threshold, the effect of air pollution becomes significantly positive due to enhanced environmental perceptions. Additionally, major crisis events (e.g. COVID-19) may weaken the role of green preference by distracting investors, leading to an insignificant impact of air pollution on green bonds after the crisis. These findings help enterprises to achieve green transformation and sustainable development through green debt financing.