Does Cultural Embeddedness on Cigarette Packages Mitigate Environmental Information Credibility? Evidence from China

Abstract

ABSTRACT Drawing on the behavioral consistency theory, we examine whether cultural embeddedness on cigarette packages as a sinful behavior window dressing affects environmental information credibility, and further investigate the moderating role of high-quality external audit (Big4 auditors). Using hand-collected data from China, our findings reveal that cultural embeddedness on cigarette packages at the province level is significantly negatively associated with corporate environmental information credibility, suggesting that cultural embeddedness on cigarette packages shapes unethical social atmosphere around firms, triggers managers to cover up environmental misconducts, and eventually mitigates environmental information credibility. Moreover, Big4 auditors weaken the negative relation between cultural embeddedness on cigarette packages and environmental information credibility. Above findings are robust to a variety of sensitivity tests using alternative proxies for cultural embeddedness on cigarette packages and environmental information credibility, and further our conclusions are still valid after using the propensity score matching method, two-stage instrumental variable OLS-TOBIT regression procedures, and Heckman two-stage regression approach to address the endogeneity issues. Furthermore, cultural embeddedness on cigarette packages significantly positively induces greenwashing. Lastly, our main findings are more pronounced for firms without pollution control departments, with lower investment in environmental technologies, with less media coverage and in provinces with lower legal enforcement.