Beyond the green facade: Evidence of a nonlinear link between greenwashing and financing efficiency

This study examines the nonlinear relationship between corporate greenwashing and financing efficiency using panel data from Chinese listed firms between 2009 and 2023. We identify an inverted U-shaped relationship grounded in signaling theory and the peer effect perspective. At low levels, greenwashing allows firms to gain legitimacy by signaling environmental responsibility and encouraging peer imitation, thereby improving financing efficiency. However, as greenwashing intensifies, stakeholder skepticism increases, leading to higher financing costs and reduced efficiency. We also explore contextual factors that moderate this relationship. Media coverage amplifies stakeholder reactions to both credible and exaggerated environmental, social, and governance (ESG) claims, while board interlocks facilitate the spread of greenwashing practices and heighten reputational risks within corporate networks. Collectively, these elements reinforce the nonlinear connection between greenwashing and financing efficiency. The results highlight the complex dynamics linking greenwashing with financing conditions and demonstrate the contingent roles of media visibility and governance networks in shaping market perceptions of ESG behavior.