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Abstract: Optimizing the "soft" business environment is in unlocking the core drivers of enterprise growth and promoting sustainable, green development. This study examines the impact of provincial business environments on enterprises' greenwashing behavior utilizing firm -level data from Chinese A-share listed companies between 2015 and 2022. Employing a difference-in-differences (DID) methodology, we estimate the policy effects of China's business environment reforms. The results indicate that an improved business environment significantly reduces the enterprises' greenwashing behavior by supporting green innovation, decreasing information asymmetry and promote financial performance. Additionally, heterogeneity analysis reveals that this effect is more pronounced in capital-intensive, high-tech industries and private enterprises. This rescarch advances our understanding of how optimizing the business environment can deter greenwashing and offers new strategies for fostering healthy competition and sustainable market development.

Keywords: Greenwashing Behavior; Business Environment; Difference-in-Differences Method