Dancing on a Razor’s Edge between Greenwashing and Brownwashing: CED and Innovation in China

This study develops a mediator-moderator model to examine the relationship between corporate environmental disclosures (CED) and innovation. Specifically, in the context of China, we integrate behavioral and institutional theories to theorize and test a curvilinear relationship between CED and Innovation such that both greenwashing and Brownwashing are associated with lower innovation than green-highlighting strategies. We further argue that this relationship is mediated by the underperformance duration and moderated by firm visibility and regulatory effectiveness. Using a sample of 3,914 observations for 624 A-share listed firms in China’s heavy-pollution industries for a period of 2013 to 2019, with fixed effects and dynamic panel regression modeling, we find robust support for all our predicted hypotheses. Our results showed a significant inverted U-shaped relationship between CED and innovation, which is mediated by the by the underperformance duration and moderated by firm visibility and regulatory effectiveness. We discuss the implication of these findings.