How does digital finance reduce corporate stock price crash risk? Exploring the new mediating channel of greenwashing behavior

Purpose This study aims to investigate how digital finance affects corporate stock price crash risk through the mediating channel of corporate greenwashing behavior, and to examine the heterogeneity of this mediating effect across different regions, firm sizes and ownership types in China. Design/methodology/approach The research uses panel data of Chinese A-share listed companies from 2012 to 2021. It adopts a two-step system generalized method of moments (GMM) for dynamic panel estimation to address endogeneity, supplemented by the instrumental variable method for robustness. The mediating effect of greenwashing is tested through stepwise regression and the Sobel–Goodman mediation test. Heterogeneity analyses are conducted by grouping samples based on regions, firm size and ownership. The analysis incorporates three subdimensions of digital finance (coverage breadth, depth of use and digitalization level) and controls for year and province factors. Findings The results show that digital finance and its three subdimensions significantly reduce stock price crash risk. Furthermore, greenwashing behavior plays a significant mediating role: digital finance inhibits greenwashing, which in turn reduces stock price crash risk. Heterogeneity analysis reveals that this mediating effect is more pronounced in eastern China, small and medium-sized enterprises and non-state-owned enterprises. Originality/value This study contributes to the literature by identifying corporate greenwashing as a new mediating mechanism through which digital finance affects stock price crash risk, filling a gap in existing research. It also provides novel insights into the heterogeneous impact of digital finance across different contexts, offering practical implications for policymakers aiming to improve market stability and corporate information transparency.