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The impact of Chinese local government hidden debt on corporate ESG greenwashing

Author

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  • Deng, Lei
  • Fu, Yizhen
  • Chen, Yu
  • Wang, Meiling

Abstract

This paper examines the impact of Chinese local government hidden debt on corporate ESG greenwashing. Using the ESG greenwashing indicator of listed firms in the A-share market and the hidden debt-to-GDP ratio of 31 provinces from 2012 to 2023, we find that local government hidden debt is positively correlated with corporate ESG greenwashing. The impact is more significant for firms that are state-owned, without active primary-level Party organizations, or not on China’s key pollution supervisory list. Mechanism analysis indicates that expansion of local government hidden debt brings firms with higher LGFVs’ share-holding for the SOEs, less social responsibility preference, and heavier environmental tax burden, each of which are related with ESG greenwashing. Reducing local government special debt, improving tax compliance and mitigating the intensity of regional peer ESG competition can help alleviate this impact. These findings highlight the necessity of fiscal risk management in achieving genuinely sustainable corporate development.

Suggested Citation

  • Deng, Lei & Fu, Yizhen & Chen, Yu & Wang, Meiling, 2026. "The impact of Chinese local government hidden debt on corporate ESG greenwashing," Research in International Business and Finance, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:riibaf:v:87:y:2026:i:c:s0275531926001546
    DOI: 10.1016/j.ribaf.2026.103427
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    Keywords

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    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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