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The Role of False-Claims Ban Regulation in Greenwashing of Firms with Imprecise Greenness Information

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  • Zhengkai Wang

    (School of Management and Economics, University of Electronic Science and Technology of China, Chengdu 611731, China)

  • Debing Ni

    (School of Management and Economics, University of Electronic Science and Technology of China, Chengdu 611731, China)

  • Kaiming Zheng

    (School of Logistics and Management Engineering, Yunnan University of Finance and Economics, Kunming 650221, China)

Abstract

The observation that firms are greenwashing in their advertisements to consumers has attracted regulatory false claim concerns; thus, we built a three-stage game theoretical model to explore how a firm’s efficiency in greenness information acquisition and a false claims ban (FCB) regulatory policy induce greenwashing (non-greenwashing) in the green advertising market. We solved the model with the concept of the perfect Bayesian equilibrium. Based on the PBEs, we obtained the following results. (1) A FCB regulatory policy is necessary to rule out any intentional greenwashing PBE. (2) In the presence of a strict FCB regulatory policy (with a large enough FCB penalty), if the precision of the firm’s observed signals is lower (or higher) than a threshold, uninformative non-greenwashing (both unintentional and uninformative non-greenwashing) PBEs arise, and the threshold increases in the FCB penalty. (3) A strict FCB regulatory policy and a high level of efficiency (regarding the firm’s greenness information acquisition) can (together) rule out greenwashing; the threshold of the efficiency of the firm’s greenness information acquisition is independent of the regulatory policy. Managerial implications are also discussed.

Suggested Citation

  • Zhengkai Wang & Debing Ni & Kaiming Zheng, 2022. "The Role of False-Claims Ban Regulation in Greenwashing of Firms with Imprecise Greenness Information," Sustainability, MDPI, vol. 14(20), pages 1-25, October.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:20:p:13655-:d:949558
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    References listed on IDEAS

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