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Sustainability or Greenwashing: Evidence from the Asset Market for Industrial Pollution

Author

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  • RAN DUCHIN
  • JANET GAO
  • QIPING XU

Abstract

We study the asset market for pollutive plants. Firms divest pollutive plants in response to environmental pressures. Buyers are firms facing weaker environmental pressures that have supply chain relationships or joint ventures with the sellers. While pollution levels do not decline following divestitures, sellers highlight their sustainable policies in subsequent conference calls, earn higher returns as they sell more pollutive plants, and benefit from higher Environmental, Social, and Governance (ESG) ratings and lower compliance costs. Overall, the asset market allows firms to redraw their boundaries in a manner perceived as environmentally friendly without real consequences for pollution but with substantial gains from trade.

Suggested Citation

  • Ran Duchin & Janet Gao & Qiping Xu, 2025. "Sustainability or Greenwashing: Evidence from the Asset Market for Industrial Pollution," Journal of Finance, American Finance Association, vol. 80(2), pages 699-754, April.
    • Handle: RePEc:bla:jfinan:v:80:y:2025:i:2:p:699-754
    DOI: 10.1111/jofi.13412
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    Cited by:

    1. Cao, Yuqiang & Liu, Yunxin & Lu, Meiting & Shan, Yaowen & Zu, Yanglan, 2025. "Generosity under environmental pressure: Climate change exposure and corporate philanthropy," International Review of Financial Analysis, Elsevier, vol. 104(PA).
    2. Simone Di Paolo & Danilo Liberati & Lorenzo Rubeo, 2026. "(Green)washing the trust: climate information and banking policies," Temi di discussione (Economic working papers) 1514, Bank of Italy, Economic Research and International Relations Area.
    3. Birindelli, Giuliana & Quas, Anita & Rancan, Michela & Vandone, Daniela, 2025. "How important are ESG ratings for financial institutions? Evidence from corporate leverage ratios across Europe," International Review of Economics & Finance, Elsevier, vol. 102(C).
    4. Koetter, Michael & Ludolph, Melina & Schub, Hendrik & Wöbbeking, Fabian, 2025. "The limits of local laws in global supply chains: Extending governance or cutting ties?," IWH Discussion Papers 14/2025, Halle Institute for Economic Research (IWH).
    5. Li, Wenquan & Neupane, Suman & Tan, Kelvin Jui Keng, 2025. "Environmental externalities of corporate culture: Evidence from firm pollution," The British Accounting Review, Elsevier, vol. 57(5).
    6. Green, Daniel & Vallee, Boris, 2025. "Measurement and effects of bank exit policies," Journal of Financial Economics, Elsevier, vol. 172(C).
    7. Li, Xinze & Zhu, Jiayin & Zhao, Qiuyun & Zhang, Gaofei & Gao, Yuan, 2025. "Government-guided voluntary environmental regulations and the entry of green investors: Evidence from the Chinese green factory program," Resource and Energy Economics, Elsevier, vol. 84(C).
    8. Liu, Guanchun & Liu, Hangjuan & Wu, Jiaqi & You, Linqing, 2025. "Macroprudential assessment framework and firms’ access to bank credit: Evidence from China," Journal of Economic Behavior & Organization, Elsevier, vol. 236(C).
    9. Sachdeva, Kunal & Silva, André F. & Slutzky, Pablo & Xu, Billy Y., 2025. "Defunding controversial industries: Can targeted credit rationing choke firms?," Journal of Financial Economics, Elsevier, vol. 172(C).
    10. Wang, Jinren & Chen, Yizhi, 2025. "Does carbon risk promote green innovation in manufacturing companies?," International Review of Financial Analysis, Elsevier, vol. 108(PA).

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