The paradox of government-guided green funds: an exacerbating effect on corporate ESG greenwashing

The government-guided green funds (GGFs) are pivotal policy-oriented financial instruments designed to channel capital toward green development sectors, but their impact on corporate ESG governance remains less explored and warrants in-depth investigation. Using panel data from China’s A-share listed companies between 2012 and 2022, this study employs a multi-period difference-in-differences approach to investigate the effect and mechanisms of GGFs on corporate ESG greenwashing. The results indicate that GGFs have an exacerbating effect on corporate ESG greenwashing, a conclusion that remains valid after a series of robustness tests. Mechanism analysis indicates that GGFs exacerbate corporate ESG greenwashing via increasing common institutional ownership and heightening environmental regulatory pressure. Additionally, heterogeneity analysis shows that the effect of GGFs is stronger in private enterprises, non-heavily-polluting industries, firms with low information transparency and those with high managerial myopia. Spillover analysis reveals that GGFs generate negative intra-industry yet positive intra-regional spillover effects on corporate ESG greenwashing. This study provides critical theoretical foundations and policy implications for governments to optimize the operational mechanisms, capital allocation, and post-investment management of GGFs.