# Optimizing board structure for ESG integrity: Nonlinear size effects and diversity moderation on greenwashing

## TL;DR

This study finds that medium-sized boards are most likely to engage in ESG greenwashing, and board diversity can either increase or reduce this risk depending on the type of diversity.

## Contribution

The study reveals a nonlinear relationship between board size and greenwashing, and identifies distinct diversity-driven mechanisms influencing this relationship.

## Key findings

- Medium-sized boards (10–13 directors) show the highest tendency for ESG greenwashing.
- Gender and functional diversity strengthen the inverted U-shaped relationship between board size and greenwashing.
- Age and nationality diversity reduce the likelihood of greenwashing in medium-sized boards.

## Abstract

This study examines the nonlinear relationship between board size and Environmental, Social, and Governance (ESG) greenwashing and explores how board diversity moderates this association. Using panel data from Chinese A-share listed firms between 2009 and 2023, we employ quadratic fixed-effects regression models to test for an inverted U-shaped relationship. The results indicate that medium-sized boards (10–13 directors) exhibit the highest propensity for greenwashing. Further analyses reveal heterogeneous moderating effects across four dimensions of board diversity—gender, functional background, nationality, and age. Specifically, reaching a critical mass of at least two female directors or increasing functional diversity strengthens the inverted U-shaped relationship, whereas greater age or nationality diversity attenuates it. Drawing on fraud triangle theory, this study uncovers a previously overlooked nonlinear mechanism underlying board size and ESG greenwashing. Moreover, it identifies two distinct diversity-driven pathways: resource-based mechanisms (gender and functional diversity) and supervision-based mechanisms (nationality diversity). These findings extend existing literature on board governance and greenwashing and provide practical insights, suggesting that firms should avoid the “danger zone” associated with medium-sized boards and adopt targeted diversity strategies to mitigate ESG greenwashing risks.