Social Trust and Corporate Greenwashing in China: The Role of Informal Institutions for Sustainability

Corporate greenwashing poses a significant challenge to global sustainability efforts. Drawing on firm-level data from China, this study explores the effect of social trust as a key informal institution on inhibiting greenwashing behavior. We find that social trust significantly reduces the level of greenwashing. Our mechanism analysis suggests that social trust restrains greenwashing primarily by enhancing corporate information transparency, alleviating managerial short-termism, and easing financial constraints. Further heterogeneity tests show that the effect is stronger in firms not audited by Big Four auditors and those without voluntary environmental disclosure, as well as in regions with weaker formal institutional environments. We also examine multidimensional trust and find that generalized trust plays a dominant role in curbing greenwashing, whereas personalized and institutional trust show limited effects. These findings highlight the importance of social capital and informal institutional forces in promoting corporate environmental accountability and advancing sustainable development goals.