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Greenwash: Corporate Environmental Disclosure under Threat of Audit
Author(s) -
Lyon Thomas P.,
Maxwell John W.
Publication year - 2011
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1530-9134.2010.00282.x
Subject(s) - greenwashing , audit , variety (cybernetics) , business , public disclosure , empirical evidence , environmental policy , accounting , environmental audit , public economics , economics , environmental resource management , corporate social responsibility , public relations , mechanical engineering , philosophy , epistemology , artificial intelligence , political science , computer science , engineering
We develop an economic model of “greenwash,” in which a firm strategically discloses environmental information and an activist may audit and penalize the firm for disclosing positive but not negative aspects of its environmental profile. We fully characterize the model's equilibria, and derive a variety of predictions about disclosure behavior. We rationalize conflicting results in the empirical literature, finding a nonmonotonic relationship between a firm's expected environmental performance and its environmental disclosures. Greater activist pressure deters greenwash, but induces some firms to disclose less about their environmental performance. Environmental management systems discourage firms with poor expected environmental performance from greenwashing, which may justify public policies encouraging firms to adopt them.