Against the backdrop of heightened global scrutiny on corporate environmental accountability, corporate greenwashing poses a significant threat to sustainable development, particularly in emerging markets. This study aims to investigate a market-driven solution by examining the role of investor green activism in curbing such practices.
Grounded in signaling theory, the authors conceptualize investors’ online environmental inquiries as a credible signal that initiates a dynamic governance process. This study uses a sample of Chinese listed firms from 2013 to 2024 to empirically examine how investor green activism influences corporate greenwashing and validate the mechanisms, moderating effects and heterogeneity.
The findings of this study highlight the crucial role of investor green activism in curbing corporate greenwashing. This effect may operate through three reinforcing mechanisms: capital market feedback, social reputational pressure and substantive green innovation. Furthermore, the authors identify key boundary conditions: analyst scrutiny amplifies this governance effect, whereas government environmental subsidies may weaken it. Heterogeneity analyses reveal that the impact is more pronounced in non-state-owned enterprises, firms with green-experienced executives, higher internal control quality and, notably, a lower proportion of independent directors. These findings underscore a substitutionary relationship between external market pressure and certain formal internal governance structures.
This study contributes to the literature on nontraditional governance, signaling theory and green finance, offering nuanced insights for regulators and investors aiming to leverage market forces for genuine corporate sustainability.
