China’s green-finance expansion shifts attention from how much firms disclose to whether transition claims remain credible when verification tightens. Using a 2007–2022 panel of Chinese A-share listed firms (crash-risk measures available through 2021), we measure transition credibility by decomposing firms’ transition signals into verifiable actions, narrative disclosure, and realized environmental outcomes, and we propose a transparent narrative–action gap measure (WordsMinusActions = WordsIndex − ActionIndex) to capture ‘words without deeds.’ Exploiting the staggered rollout of China’s Central Environmental Protection Inspections (CEPI) as a plausibly exogenous increase in verification and enforcement intensity, we find that firms with high pre-CEPI narrative–action gaps experience a sharp increase in stock price crash risk around inspections: NCSKEW rises by about 0.09 in the inspection year and 0.20 in the following year (≈0.24 SD), and DUVOL rises by about 0.04 and 0.10 (≈0.27 SD) relative to low-gap firms. Consistent with enforcement discipline, these high-gap firms subsequently reduce disclosure intensity and increase verifiable green actions, narrowing the narrative–action gap after CEPI. The evidence supports governance that rewards verifiable action and consistency over disclosure volume in markets.

Exploiting the unexpected Central Environmental Inspections (CEI) in China as a quasinaturalexperiment, we find that public firms in polluting industries experience significant gains in both profitability and market valuation after the regulatory shock, relative to firms in nonpolluting industries. The outperformance of public firms can be explained by the retreat of their private competitors, many shut down due to poor environmental performance. Because firms seeking public listing are required to meet high environmental standards, CEI significantly strengthen public firms’ competitive position, leading to increased sales growth and market share. Moreover, the outperformance is more pronounced for firms with more eco-friendly technologies, consistent with strict environmental regulations increasing the marginal benefit of these technologies. We provide novel evidence of the bright side of environmental regulation by highlighting the importance of industry dynamics.