Green Illusions: The Impact of Corporate Greenwashing on Trade Credit Access

We employ a sample of Chinese listed firms and find a robust negative relationship between a firm’s greenwashing level and its subsequent ability to secure trade credit from suppliers. To establish causality, we leverage the low-carbon city pilot policy in China to instrument local firms’ greenwashing tendencies. Our analysis reveals that firms with higher greenwashing levels subsequently exhibit greater information asymmetry and financial distress risk, suggesting that greenwashing restricts trade credit access by degrading firms’ informational environments and financial health. In line with these mechanisms, we find that the adverse impact of greenwashing on trade credit access is more pronounced for firms with weaker information transparency, greater financial vulnerability, or stronger greenwashing motivations. In summary, our study demonstrates that suppliers penalize clients’ greenwashing behavior by limiting the extension of trade credit.