Can retail investor activism inhibit corporate greenwashing behavior: Evidence from investor interactive platforms in China

Abstract

Different from developed markets, China capital market is dominated by retail investors. In the digital age, retail investors are increasingly making their voice heard through online channels, which is a new form of shareholder activism in China. This paper examines the association between retail investor activism (RIA) and corporate greenwashing behavior (CGB) using the data of question raised by investors on official investor interactive platforms (IIPs) in China. We discover that the RIA on IIPs is negatively associated with CGB. The mechanism analysis shows that the RIA helps to curb CGB through promoting information transparency and improving internal corporate governance level. We also find that the association between RIA and CGB is strengthened in regions with weaker green finance and environmental regulation, and in industries with weaker product market competition. This indicates that the RIA, a type of private governance, can serve as a substitute to the governance effect of the government and the product market. Further studies show that RIA on unofficial channels such as stock forums or search engines can promote CGB, contrary to the conclusion about IIPs. Our research suggests that strengthening the rights of retail investors through official channels helps to reduce CGB and demonstrates the importance of official channels in the governance role of RIA in emerging markets.