IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v17y2024i11p526-d1525334.html
   My bibliography  Save this article

How Greenwashing Affects Firm Risk: An International Perspective

Author

Listed:
  • Richard Paul Gregory

    (Department of Economics and Finance, College of Business and Technology, East Tennessee State University, 1276 Gilbreath Dr, Johnson City, TN 37614, USA)

Abstract

The effects of greenwashing as a corporate strategy on firm risk are not well defined. I construct a greenwashing measure for 3973 companies from 70 countries from 2012 to 2022. Using Dynamic Panel Modeling, I find results suggesting that greenwashing is a complex phenomenon with both positive and negative consequences. While it can improve a firm’s public image and potentially enhance its financial performance, it may also lead to increased risk and misallocation of resources. Greenwashing firms have a lower weighted average cost of capital due to a higher debt-to-capital ratio. They are larger, have higher institutional ownership, and lower dividend yields. On the other hand, greenwashing firms have more ESG-related controversies that can hurt firm revenues and market value, they have higher unsystematic risk, and they have lower dividend yields and return on equity. I also find evidence that there is a feedback relationship between ESG ratings and greenwashing. There is no evidence that government mandates on ESG reporting inhibit greenwashing. The implication is that ESG scoring that emphasizes reporting ESG activities while informing investors also encourages greenwashing.

Suggested Citation

  • Richard Paul Gregory, 2024. "How Greenwashing Affects Firm Risk: An International Perspective," JRFM, MDPI, vol. 17(11), pages 1-30, November.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:11:p:526-:d:1525334
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/17/11/526/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/17/11/526/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kent Walker & Fang Wan, 2012. "The Harm of Symbolic Actions and Green-Washing: Corporate Actions and Communications on Environmental Performance and Their Financial Implications," Journal of Business Ethics, Springer, vol. 109(2), pages 227-242, August.
    2. Béatrice Parguel & Florence Benoît-Moreau & Fabrice Larceneux, 2011. "How Sustainability Ratings Might Deter "Greenwashing": A Closer Look at Ethical Corporate Communication," Post-Print halshs-00561187, HAL.
    3. Béatrice Parguel & Florence Benoît-Moreau & Fabrice Larceneux, 2011. "How Sustainability Ratings Might Deter ‘Greenwashing’: A Closer Look at Ethical Corporate Communication," Journal of Business Ethics, Springer, vol. 102(1), pages 15-28, August.
    4. Lucia Gatti & Peter Seele & Lars Rademacher, 2019. "Grey zone in – greenwash out. A review of greenwashing research and implications for the voluntary-mandatory transition of CSR," International Journal of Corporate Social Responsibility, Springer, vol. 4(1), pages 1-15, December.
    5. Arouri, Mohamed & El Ghoul, Sadok & Gomes, Mathieu, 2021. "Greenwashing and product market competition," Finance Research Letters, Elsevier, vol. 42(C).
    6. Dan Dhaliwal & Shane Heitzman & Oliver Zhen Li, 2006. "Taxes, Leverage, and the Cost of Equity Capital," Journal of Accounting Research, Wiley Blackwell, vol. 44(4), pages 691-723, September.
    7. 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).
    8. Apergis, Nicholas & Poufinas, Thomas & Antonopoulos, Alexandros, 2022. "ESG scores and cost of debt," Energy Economics, Elsevier, vol. 112(C).
    9. Gregory, Richard Paul, 2022. "ESG activities and firm cash flow," Global Finance Journal, Elsevier, vol. 52(C).
    10. repec:dau:papers:123456789/4687 is not listed on IDEAS
    11. 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.
    12. 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).
    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. Marta Pizzetti & Lucia Gatti & Peter Seele, 2021. "Firms Talk, Suppliers Walk: Analyzing the Locus of Greenwashing in the Blame Game and Introducing ‘Vicarious Greenwashing’," Journal of Business Ethics, Springer, vol. 170(1), pages 21-38, April.
    2. Xiaoqian Lu & Tong Sheng & Xiaolan Zhou & Chaohai Shen & Bingquan Fang, 2022. "How Does Young Consumers’ Greenwashing Perception Impact Their Green Purchase Intention in the Fast Fashion Industry? An Analysis from the Perspective of Perceived Risk Theory," Sustainability, MDPI, vol. 14(20), pages 1-17, October.
    3. Torelli, Riccardo & Balluchi, Federica & Lazzini, Arianna, 2019. "Greenwashing and Environmental Communication: Effects on Stakeholders’ Perceptions," OSF Preprints 97vxn, Center for Open Science.
    4. Vera Ferrón‐Vílchez & Jesus Valero‐Gil & Inés Suárez‐Perales, 2021. "How does greenwashing influence managers' decision‐making? An experimental approach under stakeholder view," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(2), pages 860-880, March.
    5. Tingfa Zhang & Huaying Qin & Weishuang Xu, 2022. "Environmental Regulation, Greenwashing Behaviour, and Green Governance of High-Pollution Enterprises in China," IJERPH, MDPI, vol. 19(19), pages 1-22, October.
    6. Jennifer L. Robertson & A. Wren Montgomery & Timur Ozbilir, 2023. "Employees' response to corporate greenwashing," Business Strategy and the Environment, Wiley Blackwell, vol. 32(7), pages 4015-4027, November.
    7. Lucia Gatti & Peter Seele & Lars Rademacher, 2019. "Grey zone in – greenwash out. A review of greenwashing research and implications for the voluntary-mandatory transition of CSR," International Journal of Corporate Social Responsibility, Springer, vol. 4(1), pages 1-15, December.
    8. Gatti, Lucia & Pizzetti, Marta & Seele, Peter, 2021. "Green lies and their effect on intention to invest," Journal of Business Research, Elsevier, vol. 127(C), pages 228-240.
    9. Honglei Mu & Youngchan Lee, 2023. "Greenwashing in Corporate Social Responsibility: A Dual-Faceted Analysis of Its Impact on Employee Trust and Identification," Sustainability, MDPI, vol. 15(22), pages 1-17, November.
    10. 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.
    11. Wei Wang & Ziyuan Sun & Weixing Zhu & Lin Ma & Yuting Dong & Xiao Sun & Fengzhi Wu, 2023. "How does multi‐agent govern corporate greenwashing? A stakeholder engagement perspective from “common” to “collaborative” governance," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(1), pages 291-307, January.
    12. Guangrui Liu & Hao Qian & Qianqian Wu & Fei Han, 2024. "Research on the masking effect of vertical interlock on ESG greenwashing in the context of sustainable Enterprise development," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(1), pages 196-209, January.
    13. Riccardo Torelli & Federica Balluchi & Arianna Lazzini, 2020. "Greenwashing and environmental communication: Effects on stakeholders' perceptions," Business Strategy and the Environment, Wiley Blackwell, vol. 29(2), pages 407-421, February.
    14. Ginder, Whitney & Byun, Sang-Eun, 2022. "To trust or not to trust? The interplay between labor-related CSR claim type and prior CSR reputation of apparel retailers," Journal of Retailing and Consumer Services, Elsevier, vol. 65(C).
    15. Yongbo Sun & Binbin Shi, 2022. "Impact of Greenwashing Perception on Consumers’ Green Purchasing Intentions: A Moderated Mediation Model," Sustainability, MDPI, vol. 14(19), pages 1-15, September.
    16. Dong, Ciwei & Huang, Qianzhi & Pan, Yuqing & Ng, Chi To & Liu, Renjun, 2023. "Logistics outsourcing: Effects of greenwashing and blockchain technology," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 170(C).
    17. 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.
    18. Yunjeong Kim & Kyung Wha Oh, 2020. "Which Consumer Associations Can Build a Sustainable Fashion Brand Image? Evidence from Fast Fashion Brands," Sustainability, MDPI, vol. 12(5), pages 1-16, February.
    19. Eugene Kang & Nguyen Bao Lam, 2023. "The impact of environmental disclosure on initial public offering underpricing: Sustainable development in Singapore," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(1), pages 119-133, January.
    20. Birindelli, Giuliana & Chiappini, Helen & Jalal, Raja Nabeel-Ud-Din, 2024. "Greenwashing, bank financial performance and the moderating role of gender diversity," Research in International Business and Finance, Elsevier, vol. 69(C).

    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:gam:jjrfmx:v:17:y:2024:i:11:p:526-:d:1525334. 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: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    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.