Abstract

We delve into the nexus between political affiliations and corporate tendency to engage in the corporate hypocrisy of greenwashing, characterized by overstated environmental commitments and limited substantive actions. We document that non-SOE companies in China with political connections engage in greenwashing less intensely compared to those without such connections. To establish causality, we leverage staggered anti-corruption campaigns in China as exogenous shocks to firms’ political ties, and observe an increase in greenwashing activities post-anti-corruption. The reduced intensity of greenwashing by politically connected firms mainly stems from the improvements in actual environmental performance rather than changes in firms’ disclosure practices. Additionally, we identify relaxed financial constraints, enhanced public scrutiny, and regulatory pressures as the primary mechanisms through which political connections mitigate greenwashing. The negative relationship between political connections and greenwashing is particularly evident in companies with higher managerial power, better internal controls, and in non-heavily-polluted industries. Furthermore, by engaging less in greenwashing, politically connected firms achieve higher valuations. Our research provides fresh insights into how political connections influence corporate decisions from the perspective of business ethics.