Does ESG greenwashing impair M&A performance? Evidence from Chinese listed firms

This paper examines whether and how ESG greenwashing affects corporate mergers and acquisitions (M&A) performance. Using a sample of Chinese A-share listed firms from 2014 to 2021, we employ firm and year fixed effects regression models as our baseline specification. To test the moderating roles of internal control quality and disclosure quality, we introduce interaction terms between ESG greenwashing and each governance variable. We address potential endogeneity concerns using an instrumental variable approach, specifically the industry-year average level of ESG greenwashing, and perform additional robustness checks including controlling for provincial GDP and altering the sample period. Our empirical results provide robust evidence that ESG greenwashing significantly impairs M&A performance. Furthermore, we find that higher internal control quality and higher disclosure quality each attenuate this negative effect. Moreover, a cross-industry heterogeneity analysis reveals that the adverse effect is more pronounced in low-polluting industries, where stakeholder scrutiny of environmental claims is less intense. These findings emphasize that symbolic adherence to ESG standards introduces a strategic risk in M&A activities that can be countered by implementing and maintaining strong internal governance structures. Our study contributes to the literature on the real economic consequences of ESG greenwashing and offers practical implications for acquirers, regulators, and managers.