Sincerity not Hypocrisy: Green M&A and Corporate environmental Governance

Abstract

Although governments in China has introduced a serious of environmental police and measures to ensure the improvement in corporate green management such as green merger and acquisition (green M&A), we find that part of green M&A firms still pollute environment. This cast doubt on assertions that green M&A expect to have a positive impact on reducing corporate environmental pollution. To explain this tension, we use both perspectives of legitimacy-benefit and illegitimacy-penalty to discuss when organizations will take green M&A as a sincere greening action rather than hypocritical greenwashing in environmental governance. We thus argue that media scrutiny and state-owned enterprise (SOE) influence the likelihood that an organization will take green M&A as a sincere substantive strategic action. To be specific, we investigate that the positive relationship between green M&A and corporate environmental governance is stronger for firms in localities with greater media scrutiny, as these firms face more legitimacy-benefit and illegitimacy-penalty. While state-owned enterprises (SOEs) weaken it, as SOEs have natural political connections to undermine legitimacy-benefit and avoid illegitimacy-penalty. Empirical analyses using data on Chinese heavy-polluting firms listed on stock exchange from 2009 to 2017 support these arguments.