Does Stricter Environmental Regulation Curb Corporate Greenwashing? Evidence from China’s 2014 Environmental Protection Law

Abstract

Amid growing public concern regarding climate change and environmental sustainability, corporate greenwashing, defined as the practice of misleadingly portraying firms as environmentally responsible, has emerged as a pivotal challenge in environmental governance. Understanding how regulatory interventions shape such behavior is crucial to fostering authentic corporate environmental responsibility. This paper investigates the impact of the 2014 revision of China’s Environmental Protection Law on listed firms’ greenwashing practices. Utilizing panel data from A-share listed companies spanning 2008 to 2024, this study employs a difference-in-differences (DID) approach to evaluate the law’s effectiveness. A novel greenwashing index is constructed by integrating positive environmental information disclosure (PEID, from 8 environmental management disclosure items in annual reports), green investment (from “Construction in Progress” notes), and environmental violation penalties (from the CSMAR database). Empirical results demonstrate a significant reduction in greenwashing following the law’s enactment, with the effect being particularly pronounced among state-owned enterprises. These findings underscore the effectiveness of stricter environmental regulation in mitigating symbolic corporate environmental claims and offer methodological and policy insights for future research and governance strategies.