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Unmasking green camouflage: The governance effect of common institutional ownership on firm greenwashing

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  • Zhao, Qing
  • Feng, Xiaojuan
  • Zhang, Chunhong
  • Chen, Xinyu

Abstract

Amid growing global concerns over corporate greenwashing and the role of institutional investors in environmental governance, this study investigates whether and how common institutional ownership (CIO) acts as a market-based force to curb greenwashing among Chinese A-share firms. Using panel data from 2009 to 2023 and applying firm- and year-fixed effects, Heckman two-stage estimation, and multiple robustness tests, we find consistent evidence that CIO significantly reduces both the likelihood and severity of greenwashing. On average, CIO presence lowers the greenwashing index by 13.5 % relative to the sample mean. Mechanism analysis highlights two governance channels: (1) stronger reputational discipline, which heightens firms’ sensitivity to reputational risks, and (2) increased monitoring by financial analysts, which enhances external oversight. Together, these mechanisms explain much of CIO’s governance effect. Policy implications include promoting long-term institutional holdings, optimizing investor structures, and reinforcing monitoring frameworks to strengthen disclosure credibility and deter greenwashing.

Suggested Citation

  • Zhao, Qing & Feng, Xiaojuan & Zhang, Chunhong & Chen, Xinyu, 2025. "Unmasking green camouflage: The governance effect of common institutional ownership on firm greenwashing," Finance Research Letters, Elsevier, vol. 86(PC).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pc:s1544612325017763
    DOI: 10.1016/j.frl.2025.108522
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