Is greenwashing beneficial for corporate access to financing? Evidence from China

Abstract

• Greater greenwashing increases the size of bank loans but aggravates debt overhang. • The dual effects of greenwashing are more prevalent in non-polluting firms, large firms, and profitable enterprises . • The dual effects of greenwashing can be mitigated by administrative litigation, media coverage, and competition. We discuss the dual impacts of corporate greenwashing on access to financing. Using data from China's listed firms from 2007 to 2022 and an insightful measurement of greenwashing that uses a machine learning approach, we find that greater greenwashing increases the size of bank loans, the most important financing tool in China. However, we confirm that the effect of greenwashing on promoting financing is inefficient, as it aggravates debt overhang. The results show that media coverage, administrative litigation, and industrial and regional competition can mitigate the effect of greenwashing on financing. Our findings have policy implications for corporate sustainability.