Market Competition and Corporate ESG Greenwashing: A Perspective From New Entrants

ABSTRACT Against the backdrop of the rapid proliferation of environmental, social, and governance (ESG) principles, the phenomenon of corporate greenwashing has garnered increasing attention. Drawing upon data from A‐share listed companies in China between 2009 and 2022, this study investigates how competitive pressure influences corporate greenwashing in the ESG domain. Market competition is measured by the number of newly registered firms at the city‐industry level, while a greenwashing index is constructed based on the deviation between ESG disclosure scores and actual performance ratings. Employing a range of empirical methods, including two‐way fixed effects models and instrumental variable approaches, the analysis reveals that the entry of new firms significantly intensifies greenwashing behavior among incumbent enterprises. This effect primarily operates through the erosion of managerial confidence and the amplification of short‐termism. However, executives with strong environmental awareness or sustainability‐related backgrounds, as well as robust ESG disclosure mechanisms, can partially mitigate this tendency. External forces such as institutional investors' on‐site investigations, media oversight, and government regulation also exert a restraining influence. The study contributes to the literature by being the first to systematically assess the impact of new entrants on ESG greenwashing from the perspective of dynamic market structure and by introducing managerial confidence as a mediating mechanism. These findings offer a novel interpretive framework for understanding the strategic distortion of ESG initiatives and provide practical insights for policymakers seeking to combat greenwashing and for firms striving toward authentic green transformation under intensifying competition.