Political connections and greenwashing: Chinese evidence

Many firms are engaging in greenwashing, misleading claims about their Environmental, social, and governance (ESG) performances, which make the inclusion of ESG factors in investment decisions becomes challenging. However, little research has been conducted on its drivers. Given the prevalence of political connections and the impacts on firms' behaviour, this paper investigates the unknown relationship between political connections and greenwashing in Chinese A-listed companies from 2011 to 2020. The study finds that firms with political connections exhibit a greater degree of greenwashing than those without, indicating that political connections significantly improve greenwashing. Moreover, analysis suggests that the lower external pressure from government regulations and media contributes to the greater degree of greenwashing in politically connected firms. Finally, the positive effects of political connections on greenwashing vary significantly depending on politician characteristics, political connection costs, marketization degree, and industry features. This study contributes to a better understanding of the business ethics and the impacts of political connections on greenwashing and the mechanisms for firms in transitional economies like China. The findings highlight the importance of strengthening market-supporting institutions to reduce greenwashing. Policymakers should take measures to reduce the prevalence of political connections and promote a more transparent and equitable business environment.