Research on the Effect of Corporate Greenwashing on Environmental Rating Divergence

Yan Dai

doi:10.54097/5zkb3951

Authors

Yan Dai

DOI:

https://doi.org/10.54097/5zkb3951

Keywords:

Greenwashing; Environmental Rating Divergence; Information Asymmetry.

Abstract

The question of whether corporate greenwashing leads to divergence in ESG ratings among rating agencies remains underexplored. This study examines A-share listed companies in China from 2018 to 2022, employing text analysis to measure corporate greenwashing intensity. Using environmental rating data from WIND, Huazheng, and Bloomberg, we empirically demonstrate that corporate greenwashing significantly amplifies divergence in environmental ratings across agencies. This conclusion holds robust after rigorous tests, including instrumental variable (IV) approaches and propensity score matching (PSM). Mechanism analysis reveals that higher corporate information transparency mitigates the positive impact of greenwashing on rating divergence. Heterogeneity analysis indicates that the positive effect of greenwashing on rating divergence is more pronounced in non-heavily polluting industries and firms whose CEOs lack environmental expertise. This research extends the literature on the determinants of greenwashing and environmental rating divergence, providing empirical evidence to promote standardized ESG disclosure and curb corporate greenwashing practices.

Downloads

Download data is not yet available.

References

[1] Sun, Z., Wang, W., Sun, M., et al. (2023). Impact of media coverage on corporate greenwashing: The mediating role of executive characteristics and internal supervision. Journal of Beijing Institute of Technology (Social Sciences Edition), 25(1), 67-79.

[2] Li, D., Jia, X., & Xin, L. (2015). Literature review and prospects of corporate greenwashing behavior research. Foreign Economics & Management, (12), 86-96.

[3] Yao, Q., Hu, H., & Feng, Y. (2022). Research review and prospects of corporate greenwashing behavior. Ecological Economy, 38(3), 86-92+108.

[4] Walker, K., & Wan, F. (2012). The harm of symbolic actions and green-washing: Corporate actions and communications on environmental performance and their financial implications. Journal of Business Ethics, 109, 227-242.

[5] Jahdi, K. S., & Acikdilli, G. (2009). Marketing communications and corporate social responsibility (CSR): Marriage of convenience or shotgun wedding? Journal of Business Ethics, 88, 103-113.

[6] Yang, B. (2014). Greenwashing issues and governance in consumer markets. Social Sciences Academic Press.

[7] Delmas, M. A., & Burbano, V. C. (2011). The drivers of greenwashing. California Management Review, 54(1), 64-87.

[8] Xiao, H., Zhang, J., & Li, W. (2013). Research on corporate pseudo-social responsibility behavior. China Industrial Economics, (6), 109-121.

[9] Giese, G., Lee, L. E., Melas, D., et al. (2019). Foundations of ESG investing: How ESG affects equity valuation, risk, and performance. The Journal of Portfolio Management, 45(5), 69-83.

[10] Berg, F., Kölbel, J. F., & Rigobon, R. (2022). Aggregate confusion: The divergence of ESG ratings. Review of Finance, 26(6), 1315-1344.

[11] Wang, K., & Zhang, Z. (2022). Current status, comparison and prospects of domestic and international ESG ratings. Finance and Accounting Monthly, (2), 137-143.

[12] Liu, X., Yang, Q., & Hu, J. (2023). ESG rating divergence and stock price synchronicity. China Soft Science, (8), 108-120.

[13] Wang, J., Ma, S., & Tian, B. (2022). ESG performance and stock price crash risk: The moderating role of investor sentiment and executive overconfidence. Journal of Financial Development Research, (10), 65-72.

[14] Li, X., Liang, R., & Li, Y. (2023). Does ESG affect stock liquidity? A dual perspective based on ESG ratings and rating divergence. International Finance Research, (11), 75-86.

[15] Zhou, Z., Gu, W., & San, Z. (2023). ESG rating divergence and analyst earnings forecast accuracy. China Soft Science, (10), 164-176.

[16] Hu, X., Hua, R., Liu, Q., et al. (2023). The green fog: Environmental rating disagreement and corporate greenwashing. Pacific-Basin Finance Journal, 78, 101952.

[17] Huang, R., & Chu, F. (2021). Does third-party verification help curb corporate greenwashing? The Chinese Certified Public Accountant, (8), 38-42.

[18] Christensen, D. M., Serafeim, G., & Sikochi, A. (2022). Why is corporate virtue in the eye of the beholder? The case of ESG ratings. The Accounting Review, 97(1), 147-175.

[19] Eliwa, Y., Aboud, A., & Saleh, A. (2021). ESG practices and the cost of debt: Evidence from EU countries. Critical Perspectives on Accounting, 79, 102097.

[20] Avramov, D., Cheng, S., Lioui, A., et al. (2021). Sustainable investing with ESG rating uncertainty. Journal of Financial Economics, 149(2), 550-571.

[21] Shen, Y., Qian, M., Lyu, M., et al. (2023). Minority shareholder supervision and greenwashing governance: Text analysis based on word vector model. China Population, Resources and Environment, 33(8), 116-129.

[22] Xu, W., Yao, Z., & Chen, D. (2021). Readability of Chinese annual reports: Measurement and test. Accounting Research, (3), 28-44.

[23] Jiang, F., Meng, L., & Tang, G. (2021). Media text sentiment and stock return prediction. China Economic Quarterly, 21(4), 1323-1344.

[24] Durnev, A., & Mangen, C. (2020). The spillover effects of MD&A disclosures for real investment: The role of industry competition. Journal of Accounting and Economics, 70(1), 101299.

[25] Zeng, Q., Zhou, B., Zhang, C., et al. (2018). Annual report tone and insider trading: "Consistent" or "double-faced"? Management World, 34(9), 143-160.

[26] Huang, R., Chen, W., & Wang, K. (2019). External financing needs, impression management and corporate greenwashing. Comparative Economic & Social Systems, (3), 81-93.

[27] Wu, H., Feng, W., & Zeng, J. (2024). Does corporate greenwashing affect labor income share? Finance and Accounting Monthly, 45(16), 29-35.

[28] Zhang, P., & Gu, H. (2023). Potential policy coordination: Can energy intensity targets affect energy poverty? Energy Economics, 126, 106937.

[29] Xie, D., & Lin, L. (2015). Can management tone predict future corporate performance? Text analysis based on annual performance briefings of Chinese listed companies. Accounting Research, (2), 20-27+93.

[30] Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics, 31(1-3), 405-440.

[31] Lara, J. M. G., Osma, B. G., & Penalva, F. (2016). Accounting conservatism and firm investment efficiency. Journal of Accounting and Economics, 61(1), 221-238.

[32] Kothari, S. P., Li, X., & Short, J. E. (2009). The effect of disclosures by management, analysts, and business press on cost of capital, return volatility, and analyst forecasts: A study using content analysis. The Accounting Review, 84(5), 1639-1670.

[33] Jin, L., & Myers, S. C. (2006). R2 around the world: New theory and new tests. Journal of Financial Economics, 79(2), 257-292.

[34] Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9(2), 193-206.

[35] Andersén, J., Jansson, C., & Ljungkvist, T. (2020). Can environmentally oriented CEOs and environmentally friendly suppliers boost the growth of small firms? Business Strategy and the Environment, 29(2), 325-334.

[36] Dong, Y., Zhan, J., & Peng, Y. (in press). The impact of executives' green cognition on ESG rating divergence. Journal of Guizhou University of Finance and Economics, 1-12.