Effects of greenwashing on financial performance: Moderation through local environmental regulation and media coverage

TLDR

Recent research indicates that the impact of greenwashing on corporate financial performance is ambiguous. The study aims to identify contextual factors that moderate the greenwashing–CFP relationship. The authors analyze 2,816 observations from 735 Chinese firms (2013‑2017) to assess greenwashing’s effect on CFP and its moderation by local environmental regulation, media visibility, and media favourability. Greenwashing positively impacts CFP, yet stringent environmental regulation weakens this effect and low media favourability reverses it; local regulation and negative media coverage reduce information asymmetry, facilitating detection of greenwashing, marking the first institutional‑environment study of this relationship.

Abstract

Abstract Recent research suggests that the effect of greenwashing and corporate financial performance (CFP) is ambiguous. This call for study the contextual factors that create contingencies in the greenwashing–CFP relationship. Using a sample of 2816 observations covering 735 Chinese‐listed firms in 21 different industries from 2013 to 2017, this research examines the effect of greenwashing on CFP and explores the moderating effects of local environmental regulation, media visibility and media favourability. Results show that greenwashing positively affects CFP and effect weakened with stringent environmental regulations and reversed with low media favourability. Our finding implies that stakeholders could hardly identify greenwashing in the context of an emerging economy with high‐level information asymmetry. However, local environmental regulation and negative media coverage could reduce this information asymmetry, making greenwashing easier to be identified. It is the first study to investigate greenwashing–CFP relationship from institutional environment perspective.