Green financial system regulation shock and greenwashing behaviors: Evidence from Chinese firms

Understanding the relationship between extreme events and firms' green behavior is vital in the study of green finance since extreme events have strong effects on green financial risk. This paper employs Chinese listed manufacturing firm-level data for the period 2013–2019 and uses the difference-in-difference method to more accurately estimate the impact on greenwashing risk of extreme events in the form of green financial-system-regulation shock. We find that green financial regulation makes highly polluting firms more likely to greenwash, and this impact is significant for private but not for state- and foreign-owned firms. Furthermore, green financial regulation imposes financial constraints on highly polluting firms, and these make it more difficult to obtain financing for renewable energy innovation, thereby driving greenwashing.