To be green or not to be: How governmental regulation shapes financial institutions' greenwashing behaviors in green finance

Green finance provides important economic support for environmental protection and carbon reduction. However, some financial institutions engage in greenwashing behaviors (GWBs), which raise funds through green finance products (GFPs) without investing in green projects and falsely disclosing environmental information. The GWBs of financial institutions result in tremendous pressure on governmental regulation. From the perspective of information disclosure, under incomplete information, we constructed a signaling game between governments and financial institutions to explore the formation mechanism of financial institutions' GWBs. Subsequently, the separating equilibrium, pooling equilibrium, and hybrid equilibrium are investigated. The corresponding conditions for financial institutions choosing positive information disclosure were derived. We also evaluated the effects of different regulatory measures, including rewards, penalties, standards, and certifications on curbing GWBs. Finally, countermeasures to shape financial institutions to undertake their environmental responsibilities and conduct positive information disclosure are proposed. This study provides a theoretical explanation for GWBs and sheds new light on an effective governance model in green finance.