Distracting the watchdogs: ESG greenwashing and corporate tax avoidance in China

This study examines whether ESG greenwashing and corporate tax avoidance – two distinct manifestations of corporate opportunism – operate as strategic substitutes or complements, using 9,124 Chinese firm-year observations from 2013 to 2022. Measuring greenwashing as the decoupling between ESG disclosure and ESG performance, we document a robust positive association: a one-standard-deviation increase in greenwashing is associated with a 0.66%-point wider gap between the applicable statutory and effective tax rates. Cross-sectional tests show that the complementarity is stronger among financially unconstrained firms and firms located in more marketized regions. Overall, the evidence favours the view that symbolic ESG disclosure and aggressive tax planning are complementary rather than substitute strategies, with implications for ESG verification and tax transparency in emerging markets.