Does environmental governance mitigate the detriment of greenwashing on innovation in China?

The study examines the impact of greenwashing on corporate innovation and its governance mechanisms using a sample of 1337 Chinese A-share listed enterprises from 2009 to 2021. The results indicate that greenwashing behavior inhibits corporate innovation output, adversely affecting long-term value realization. More importantly, we explore positive roles of government and corporate internal environmental governance measures in regulating corporate deceptive “greenwashing” behavior. Through environmental policy tools, such as environmental subsidies and penalties, governments can provide positive incentives and negative constraints for corporate environmental governance. Furthermore, improving green investment and board environmental background can build a virtuous corporate internal incentive mechanism. Both inhibit the costs and incentives of greenwashing, prompting enterprises to focus more on long-term development and innovation investment. Additionally, greenwashing has more significant effects in green innovation, high-tech industries, and high-financing constrained enterprises. Our findings provide new insights into the economic consequences of greenwashing and its effective governance measures.