Government exposure and corporate ESG greenwashing: Evidence from Chinese listed firms.

Abstract

In government-led economies, ESG metrics increasingly serve as key criteria for allocating fiscal subsidies and green finance, yet whether deeper government-firm administrative interactions curb or foster corporate greenwashing remains unresolved. Using a panel of 12,854 firm-year observations from Chinese A-share listed firms over 2010-2023, this study constructs a continuous, dynamic government exposure index by identifying the sentence-level co-occurrence of government agency names and administrative action verbs in annual reports, thereby capturing the intensity of firms' interactions with the administrative apparatus and examining its effect on ESG greenwashing. The results show that government exposure significantly exacerbates ESG greenwashing: a one-standard-deviation increase corresponds to a 7.9% standard-deviation rise in greenwashing. This finding holds across extensive measurement-validity, robustness, and endogeneity tests. Mechanism analyses indicate that defensive impression management, triggered by heightened media attention, constitutes the primary channel, while the positive association with government subsidies provides suggestive evidence for a resource-acquisition channel. Heterogeneity analyses with formal between-group tests show that these effects are significantly stronger among financially constrained firms and in regions under high fiscal pressure, while state ownership and marketization display only weaker moderating patterns. These findings provide policy implications for strengthening linked verification mechanisms between ESG disclosure and performance and for optimizing green subsidy allocation criteria.