Local governmental environmental responsibility and corporate greenwashing: Quasi-experimental evidence from China

Abstract

The issue of greenwashing in Environmental, Social, and Governance (ESG) disclosure has addressed global concerns in recent years. However, how external stakeholders help alleviate greenwashing remains largely unclear. To explore this question, we adopt a difference-in-differences (DID) approach to study the effect of Natural Resources Accountability Audit (NRAA) on corporate greenwashing behavior. Drawing on the heavily polluting enterprise dataset over the period 2011–2021, this study shows that the implementation of NRAA significantly reduces greenwashing practices and ensures the reliability of corporate ESG disclosure. Intuitively, we find that environmental accountability of local government eliminates corporate greenwashing through stimulating more site visit of institutional investors, revealing the importance of external governance in shaping corporate strategies. Further analysis on corporate environmental irresponsibility verifies that enterprises curtail greenwashing practices for their pursuit of legitimacy. Additionally, this study reveals that NRAA performs more effectively for state-owned and politically connected enterprises and those in regions with a high level of marketization. The conclusions serve to extend signaling and legitimacy theory, supplying valuable implications for corporate ESG disclosure.