How the Market Values Greenwashing? Evidence from China

Xingqiang Du ()

Journal of Business Ethics, 2015, vol. 128, issue 3, 547-574

Abstract: In China, many firms advertise that they follow environmentally friendly practices to cover their true activities, a practice called greenwashing, which can cause the public to doubt the sincerity of greenization messages. In this study, I investigate how the market values greenwashing and further examine whether corporate environmental performance can explain different and asymmetric market reactions to environmentally friendly and unfriendly firms. Using a sample from the Chinese stock market, I provide strong evidence to show that greenwashing is significantly negatively associated with cumulative abnormal returns (CAR) around the exposure of greenwashing. In addition, corporate environmental performance is significantly positively associated with CAR around the exposure of greenwashing. Furthermore, my findings suggest that corporate environmental performance has two distinct effects on CAR around the exposure of greenwashing: the competitive effect for environmentally friendly firms and the contagious effect for potential environmental wrongdoers, respectively. The results are robust to various sensitivity tests. Copyright Springer Science+Business Media Dordrecht 2015

Keywords: Greenwashing; Corporate environmental performance; Cumulative abnormal returns (CAR); Media coverage; The Global Reporting Initiative (GRI); The competitive effect; The contagious effect; Environmental wrongdoer; China (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (123)

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DOI: 10.1007/s10551-014-2122-y

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