IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v118y2023ics0140988323000282.html
   My bibliography  Save this article

Subsidy expiration and greenwashing decision: Is there a role of bankruptcy risk?

Author

Listed:
  • Zhang, Dongyang

Abstract

Subsidies greatly matter for green performance and sustainable growth through alleviating financial needs. However, once a subsidy shock occurs, caused at the point at which the subsidy expires, bankruptcy risk, and the business strategy known as greenwashing, potentially arise. This paper seeks to identify the relationship between subsidy shock and greenwashing through accessing information on Chinese listed companies during the period 2011 to 2021, and we have raised several findings accordingly. First, subsidy shock has a significant and positive effect on greenwashing behaviors. Second, we further uncover that companies with high financial risk or that are financially constrained are strongly motivated to greenwash after a subsidy expires. Companies that are motivated by subsidy shock to greenwash are significantly present in low competition markets. Moreover, we show that the greenwashing is created by reducing investment in innovation and efficiency, and increasing green innovation costs when organizations are facing financial risks. By identifying and deploying different measurements of greenwashing, we show our results to be robust.

Suggested Citation

  • Zhang, Dongyang, 2023. "Subsidy expiration and greenwashing decision: Is there a role of bankruptcy risk?," Energy Economics, Elsevier, vol. 118(C).
    • Handle: RePEc:eee:eneeco:v:118:y:2023:i:c:s0140988323000282
    DOI: 10.1016/j.eneco.2023.106530
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988323000282
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2023.106530?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Pascual Berrone & Andrea Fosfuri & Liliana Gelabert, 2017. "Does Greenwashing Pay Off? Understanding the Relationship Between Environmental Actions and Environmental Legitimacy," Journal of Business Ethics, Springer, vol. 144(2), pages 363-379, August.
    2. Hsihui Chang and Ehsan Feroz & Daniel Bryan & Guy Dinesh Fernando & Arindam Tripathy, 2013. "Bankruptcy risk, productivity and firm strategy," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 12(4), pages 309-326, October.
    3. Zhang, Dongyang & Kong, Qunxi, 2021. "How does energy policy affect firms' outward foreign direct investment: An explanation based on investment motivation and firms' performance," Energy Policy, Elsevier, vol. 158(C).
    4. repec:eme:sef000:sef-01-2018-0013 is not listed on IDEAS
    5. Almamy, Jeehan & Aston, John & Ngwa, Leonard N., 2016. "An evaluation of Altman's Z-score using cash flow ratio to predict corporate failure amid the recent financial crisis: Evidence from the UK," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 278-285.
    6. Sadok El Ghoul & Omrane Guedhami & Hakkon Kim & Kwangwoo Park, 2018. "Corporate Environmental Responsibility and the Cost of Capital: International Evidence," Journal of Business Ethics, Springer, vol. 149(2), pages 335-361, May.
    7. Aerts, Walter & Cormier, Denis, 2009. "Media legitimacy and corporate environmental communication," Accounting, Organizations and Society, Elsevier, vol. 34(1), pages 1-27, January.
    8. Wen, Huwei & Lee, Chien-Chiang & Zhou, Fengxiu, 2022. "How does fiscal policy uncertainty affect corporate innovation investment? Evidence from China's new energy industry," Energy Economics, Elsevier, vol. 105(C).
    9. Jerry W. Kim & Brayden G King, 2014. "Seeing Stars: Matthew Effects and Status Bias in Major League Baseball Umpiring," Management Science, INFORMS, vol. 60(11), pages 2619-2644, November.
    10. Zhang, Dongyang, 2022. "Do heterogenous subsides work differently on environmental innovation? A mechanism exploration approach," Energy Economics, Elsevier, vol. 114(C).
    11. Andrei Shleifer, 2004. "Does Competition Destroy Ethical Behavior?," American Economic Review, American Economic Association, vol. 94(2), pages 414-418, May.
    12. Arouri, Mohamed & El Ghoul, Sadok & Gomes, Mathieu, 2021. "Greenwashing and product market competition," Finance Research Letters, Elsevier, vol. 42(C).
    13. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    14. Robert Simons, 1994. "How new top managers use control systems as levers of strategic renewal," Strategic Management Journal, Wiley Blackwell, vol. 15(3), pages 169-189, March.
    15. Lu, Chao & Liu, Hu-Chen & Tao, Jie & Rong, Ke & Hsieh, Ying-Che, 2017. "A key stakeholder-based financial subsidy stimulation for Chinese EV industrialization: A system dynamics simulation," Technological Forecasting and Social Change, Elsevier, vol. 118(C), pages 1-14.
    16. Almus, Matthias & Czarnitzki, Dirk, 2003. "The Effects of Public R&D Subsidies on Firms' Innovation Activities: The Case of Eastern Germany," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(2), pages 226-236, April.
    17. Mohammed Benlemlih & Isabelle Girerd-Potin, 2017. "Corporate social responsibility and firm financial risk reduction: On the moderating role of the legal environment," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 44(7-8), pages 1137-1166, July.
    18. Xia, Li & Gao, Shuo & Wei, Jiuchang & Ding, Qiying, 2022. "Government subsidy and corporate green innovation - Does board governance play a role?," Energy Policy, Elsevier, vol. 161(C).
    19. Yu, Ellen Pei-yi & Luu, Bac Van & Chen, Catherine Huirong, 2020. "Greenwashing in environmental, social and governance disclosures," Research in International Business and Finance, Elsevier, vol. 52(C).
    20. Chen, Yonghuai & Li, Tao & Zeng, Qing & Zhu, Bo, 2023. "Effect of ESG performance on the cost of equity capital: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 348-364.
    21. Pontus Cerin, 2002. "Communication in corporate environmental reports," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 9(1), pages 46-65, March.
    22. Nandy, Monomita & Lodh, Suman, 2012. "Do banks value the eco-friendliness of firms in their corporate lending decision? Some empirical evidence," International Review of Financial Analysis, Elsevier, vol. 25(C), pages 83-93.
    23. Magali A. Delmas & Maria J. Montes‐Sancho, 2010. "Voluntary agreements to improve environmental quality: symbolic and substantive cooperation," Strategic Management Journal, Wiley Blackwell, vol. 31(6), pages 575-601, June.
    24. Mark P. Sharfman & Chitru S. Fernando, 2008. "Environmental risk management and the cost of capital," Strategic Management Journal, Wiley Blackwell, vol. 29(6), pages 569-592, June.
    25. Elizabeth Cooper & Hatice Uzun, 2019. "Corporate social responsibility and bankruptcy," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 36(2), pages 130-153, June.
    26. Widener, Sally K., 2007. "An empirical analysis of the levers of control framework," Accounting, Organizations and Society, Elsevier, vol. 32(7-8), pages 757-788.
    27. Andreas Hoepner & Ioannis Oikonomou & Bert Scholtens & Michael Schröder, 2016. "The Effects of Corporate and Country Sustainability Characteristics on The Cost of Debt: An International Investigation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 43(1-2), pages 158-190, January.
    28. Zhang, Dongyang, 2022. "Environmental regulation and firm product quality improvement: How does the greenwashing response?," International Review of Financial Analysis, Elsevier, vol. 80(C).
    29. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    30. Peter Seele & Lucia Gatti, 2017. "Greenwashing Revisited: In Search of a Typology and Accusation‐Based Definition Incorporating Legitimacy Strategies," Business Strategy and the Environment, Wiley Blackwell, vol. 26(2), pages 239-252, February.
    31. Gregory Jackson & Androniki Apostolakou, 2010. "Corporate Social Responsibility in Western Europe: An Institutional Mirror or Substitute?," Journal of Business Ethics, Springer, vol. 94(3), pages 371-394, July.
    32. Thomas P. Lyon & John W. Maxwell, 2011. "Greenwash: Corporate Environmental Disclosure under Threat of Audit," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(1), pages 3-41, March.
    33. Bi, Kexin & Huang, Ping & Wang, Xiangxiang, 2016. "Innovation performance and influencing factors of low-carbon technological innovation under the global value chain: A case of Chinese manufacturing industry," Technological Forecasting and Social Change, Elsevier, vol. 111(C), pages 275-284.
    34. Zhang, Dongyang & Kong, Qunxi, 2022. "Credit policy, uncertainty, and firm R&D investment: A quasi-natural experiment based on the Green Credit Guidelines," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    35. Daniel Bryan & Guy Dinesh Fernando & Arindam Tripathy, 2013. "Bankruptcy risk, productivity and firm strategy," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 12(4), pages 309-326, October.
    36. Taghizadeh-Hesary, Farhad & Phoumin, Han & Rasoulinezhad, Ehsan, 2022. "COVID-19 and regional solutions for mitigating the risk of SME finance in selected ASEAN member states," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 506-525.
    37. Mohammed Benlemlih & Isabelle Girerd-Potin, 2017. "Corporate social responsibility and firm financial risk reduction: On the moderating role of the legal environment," Post-Print hal-01977064, HAL.
    38. Andy Lockett & Andrew Wild, 2014. "Bringing history (back) into the resource-based view," Business History, Taylor & Francis Journals, vol. 56(3), pages 372-390, April.
    39. Goss, Allen & Roberts, Gordon S., 2011. "The impact of corporate social responsibility on the cost of bank loans," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1794-1810, July.
    40. Zhang, Dongyang, 2022. "Green financial system regulation shock and greenwashing behaviors: Evidence from Chinese firms," Energy Economics, Elsevier, vol. 111(C).
    41. Daniel Bryan & Guy Dinesh Fernando & Arindam Tripathy, 2013. "Bankruptcy risk, productivity and firm strategy," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 12(4), pages 309-326, October.
    42. Solaymani, Saeed & Kari, Fatimah, 2014. "Impacts of energy subsidy reform on the Malaysian economy and transportation sector," Energy Policy, Elsevier, vol. 70(C), pages 115-125.
    43. Sun, Xiaohua & Liu, Xiaoling & Wang, Yun & Yuan, Fang, 2019. "The effects of public subsidies on emerging industry: An agent-based model of the electric vehicle industry," Technological Forecasting and Social Change, Elsevier, vol. 140(C), pages 281-295.
    44. Dai, Xiaoyong & Cheng, Liwei, 2015. "The effect of public subsidies on corporate R&D investment: An application of the generalized propensity score," Technological Forecasting and Social Change, Elsevier, vol. 90(PB), pages 410-419.
    45. Oliver Lukason & María-del-Mar Camacho-Miñano, 2019. "Bankruptcy Risk, Its Financial Determinants and Reporting Delays: Do Managers Have Anything to Hide?," Risks, MDPI, vol. 7(3), pages 1-15, July.
    46. Hu, Guoqiang & Wang, Xiaoqi & Wang, Yu, 2021. "Can the green credit policy stimulate green innovation in heavily polluting enterprises? Evidence from a quasi-natural experiment in China," Energy Economics, Elsevier, vol. 98(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wei Li & Weining Li & Veikko Seppänen & Timo Koivumäki, 2023. "Effects of greenwashing on financial performance: Moderation through local environmental regulation and media coverage," Business Strategy and the Environment, Wiley Blackwell, vol. 32(1), pages 820-841, January.
    2. Zhang, Dongyang, 2022. "Environmental regulation, green innovation, and export product quality: What is the role of greenwashing?," International Review of Financial Analysis, Elsevier, vol. 83(C).
    3. Zhang, Dongyang, 2022. "Green financial system regulation shock and greenwashing behaviors: Evidence from Chinese firms," Energy Economics, Elsevier, vol. 111(C).
    4. Zhang, Dongyang, 2022. "Do heterogenous subsides work differently on environmental innovation? A mechanism exploration approach," Energy Economics, Elsevier, vol. 114(C).
    5. Wei Wang & Dechao Ma & Fengzhi Wu & Mengxin Sun & Shuangqing Xu & Qiuyue Hua & Ziyuan Sun, 2023. "Exploring the Knowledge Structure and Hotspot Evolution of Greenwashing: A Visual Analysis Based on Bibliometrics," Sustainability, MDPI, vol. 15(3), pages 1-35, January.
    6. Zhang, Dongyang, 2023. "Does green finance really inhibit extreme hypocritical ESG risk? A greenwashing perspective exploration," Energy Economics, Elsevier, vol. 121(C).
    7. Ballester, Laura & González-Urteaga, Ana & Shen, Long, 2024. "Green bond issuance and credit risk: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 94(C).
    8. Tian, Jinfang & Sun, Siyang & Cao, Wei & Bu, Di & Xue, Rui, 2024. "Make every dollar count: The impact of green credit regulation on corporate green investment efficiency," Energy Economics, Elsevier, vol. 130(C).
    9. Gutiérrez-López, Cristina & Castro, Paula & Tascón, María T., 2022. "How can firms' transition to a low-carbon economy affect the distance to default?," Research in International Business and Finance, Elsevier, vol. 62(C).
    10. Boubaker, Sabri & Cellier, Alexis & Manita, Riadh & Saeed, Asif, 2020. "Does corporate social responsibility reduce financial distress risk?," Economic Modelling, Elsevier, vol. 91(C), pages 835-851.
    11. Zhang, Dongyang & Lucey, Brian M., 2022. "Sustainable behaviors and firm performance: The role of financial constraints’ alleviation," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 220-233.
    12. Fard, Amirhossein & Javadi, Siamak & Kim, Incheol, 2020. "Environmental regulation and the cost of bank loans: International evidence," Journal of Financial Stability, Elsevier, vol. 51(C).
    13. Zhang, Dongyang, 2023. "Can environmental monitoring power transition curb corporate greenwashing behavior?," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 199-218.
    14. Jerry Cao & Robert Faff & Jing He & Yong Li, 2022. "Who's Greenwashing Via the Media and What are the Consequences? Evidence From China," Abacus, Accounting Foundation, University of Sydney, vol. 58(4), pages 759-786, December.
    15. Hu, Shuo & Wang, Ailun & Du, Kerui, 2023. "Environmental tax reform and greenwashing: Evidence from Chinese listed companies," Energy Economics, Elsevier, vol. 124(C).
    16. Ho, Choy Yeing (Chloe) & Wu, Eliza & Yu, Jing, 2024. "The price of corporate social irresponsibility in seasoned equity offerings: International evidence," The British Accounting Review, Elsevier, vol. 56(4).
    17. Tan, Ruipeng & Cai, Qijun & Pan, Lulu, 2024. "Faking for fortune: Emissions trading schemes and corporate greenwashing in China," Energy Economics, Elsevier, vol. 130(C).
    18. Eliwa, Yasser & Aboud, Ahmed & Saleh, Ahmed, 2021. "ESG practices and the cost of debt: Evidence from EU countries," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 79(C).
    19. Alain Devalle & Simona Fiandrino & Valter Cantino, 2017. "The Linkage between ESG Performance and Credit Ratings: A Firm-Level Perspective Analysis," International Journal of Business and Management, Canadian Center of Science and Education, vol. 12(9), pages 1-53, August.
    20. Ratajczak Piotr & Mikołajewicz Grzegorz, 2021. "The impact of environmental, social and corporate governance responsibility on the cost of short-and long-term debt," Economics and Business Review, Sciendo, vol. 7(2), pages 74-96, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:118:y:2023:i:c:s0140988323000282. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.