Threat or shield: Environmental administrative penalties and corporate greenwashing

Abstract

We develop a method that identifies corporate greenwashing adopting a deep learning algorithm and find a robust positive association between environmental administrative penalties and corporate greenwashing. We also find that opportunistic management tendencies and heightened external pressures motivate firms to greenwash after such penalties. Additionally, firms with weak internal control quality, operating within fiercely competitive industries, or located in regions of severe environmental pollution are more inclined to greenwash to mitigate losses stemming from administrative penalties. Our work provides theoretical insights into the effectiveness of environmental penalties and contributes to the ongoing regulation and disclosure debate.