Can environmental monitoring power transition curb corporate greenwashing behavior?

To address ecological, climate and environmental issues in sustainable growth, local ecological environmental monitoring power withdrawal (EEMPW) by the Chinese State Council has been implemented since 2015. This paper aims to comprehensively investigate how the centralization of national environmental quality monitoring policy via the EEMPW affects corporate greenwashing behavior, and evaluate the reacting mechanisms. The empirical findings derived by the continuous difference-in-differences models show that the EEMPW significantly curbs firms’ hypocritical greenwashing behaviors, and by increasing financial constraint level, the greenwashing behaviors can be significantly reduced. This paper finds that firms in cleaner production industries, firms in regions with highly developed green finance, firms in highly environmentally regulated areas, and state-owned enterprises are more restrained in greenwashing. Furthermore, our mechanism analyses show that financially constrained firms reduce their likelihood of greenwashing behavior by compressing management and financial costs, and facilitating green innovation efficiency behaviors. Our findings provide suggestions for curbing greenwashing behaviors and for improving the efficiency of the government regulation of ecological, climate and environmental targets in economic growth.