Bank competition and firm greenwashing: Evidence from China

Abstract

This study investigates the effects of bank competition on firms’ greenwashing. Using Chinese commercial bank branches’ geographic location data, we reveal that increased competition reduces greenwashing among firms located near more bank branches. The study posits that rising competitive intensity may relieve financial constraints, which weakens firms’ inclination to engage in greenwashing. We combine 11,465 observations of Chinese A-share listed firms from 2011 to 2021, bank location data, and environmental, social, and corporate governance (ESG) performance. Our results demonstrate that the effects are stronger for large, financially constrained firms, and those more highly leveraged, with relevant implications for policymakers focused on the consequences of bank deregulation and firms’ ESG performance.