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Shades of green: The impact of greenwashing on stock price crash risk

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  • Zhang, Xuchang
  • Kong, Lingfeng
  • Hu, Xuetong

Abstract

Using a sample of Chinese firms during 2008–2023, we reveal a positive relationship between firms' greenwashing levels and subsequent stock price crash risk. The two-stage regressions based on the instrumental variable approach and the staggered DiD regressions based on China's low-carbon city pilot programs confirm that the relationship is causal. Mechanism tests suggest that firms resort to greenwashing to mask negative information about their sustainability and managerial opportunism, thereby increasing subsequent stock price crash risk. Heterogeneity analysis reinforces this mechanism, showing that the impact of greenwashing is greater for firms with stronger greenwashing incentives, less transparency, and weaker governance mechanisms.

Suggested Citation

  • Zhang, Xuchang & Kong, Lingfeng & Hu, Xuetong, 2024. "Shades of green: The impact of greenwashing on stock price crash risk," Finance Research Letters, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:finlet:v:70:y:2024:i:c:s154461232401314x
    DOI: 10.1016/j.frl.2024.106285
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    References listed on IDEAS

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    2. Sun, Guanglin & Yan, Zian & Gong, Zejun & Li, Mengding, 2025. "The impact of ESG rating divergence on stock price crash risk," International Review of Financial Analysis, Elsevier, vol. 102(C).

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