Litigation risk, institutional ownership and corporate greenwashing
Shan Jin, Christopher GanPurpose
This study aims to examine how litigation risk affects corporate greenwashing among Chinese A-share listed non-financial firms from 2009 to 2022. It explores whether firms facing greater legal pressure adopt symbolic environmental, social and governance (ESG) disclosure to preserve legitimacy and manage stakeholder perceptions. The study also investigates whether institutional ownership moderates this relationship and whether the effects differ across ownership structure and audit quality.
Design/methodology/approach
The analysis uses firm-level panel data regression models with firm, industry and year fixed effects. Multiple robustness tests are conducted to address endogeneity concerns and verify result consistency. The study further performs moderation analysis for institutional ownership and heterogeneity analysis for ownership structure and audit quality.
Findings
The results show that higher litigation risk significantly increases the likelihood of corporate greenwashing, indicating that legal pressure encourages symbolic rather than substantive ESG practices. Institutional ownership weakens this relationship, highlighting the monitoring role of institutional investors. The positive effect of litigation risk is stronger in non-state-owned enterprises and firms not audited by Big Four accounting firms. These results remain robust across alternative model specifications.
Originality/value
This study introduces litigation risk as a strategic driver of corporate greenwashing and extends legitimacy theory to the Chinese context. It demonstrates how legal pressure and governance mechanisms jointly shape firms’ ESG disclosure behavior. The findings offer new insights for regulators and investors aiming to strengthen ESG reporting standards, enhance enforcement and promote authentic sustainability practices in emerging markets.