Retail investor attention: Guardian of corporate ESG integrity or catalyst for greenwashing?

doi:10.1016/j.eneco.2025.108361

Energy Economics

Volume 144, April 2025, 108361

https://doi.org/10.1016/j.eneco.2025.108361 Get rights and content

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Highlights

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Retail investor attention drives corporate ESG greenwashing.
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Retail investor attention increases corporate disclosures more than real engagement.
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Financially constrained firms and weak governance firms engage in more greenwashing.
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Greenwashing temporarily enhances corporate financial performance.

Abstract

This study explores the relationship between retail investor attention and corporate environment, society, and governance (ESG) greenwashing. We demonstrate that greater retail investor attention drives greenwashing behaviors. This is confirmed through robust empirical analyses, including alternative definitions of greenwashing and retail investor attention, controls for confounding variables, quantile regressions, and Oster analysis. To address endogeneity, we employ an exogenous shock—initiation of online interactions via the SSE and SZSE e-interaction platforms—and prove a causal link between increased retail investor attention and prevalence of greenwashing practices. Regarding the underlying mechanisms, retail investor attention enables corporations to increase ESG disclosures but not actual ESG performance, and this effect is stronger in companies with higher financial constraints and are less managerial forward-looking. Additionally, better corporate governance and more professional investor attention reduce the influence of retail investors. Finally, we find that firms engaged in greenwashing tend to temporarily improve their financial performance. This study not only sheds light on the dynamics of retail investors' influence on corporate behavior but also underscores the need for professional investors and accountable corporate governance to mitigate the tendency towards greenwashing.

Keywords

Retail investor attention

ESG greenwashing

ESG disclosure

1. Introduction

Environmental, social, and governance (ESG) are the key indicators of a corporation's sustainability and social responsibility. Since the 21st century, ESG has been vital in assessing corporate performance, helping investors identify risks, and boosting long-term returns. However, some corporations resort to greenwashing by disclosing misleading information rather than committing to actual green performance. They selectively highlight ESG efforts to attract investment and avoid policy scrutiny, which have spurred interest in curbing ESG greenwashing. Greenwashing deceives investors, distorts corporate value, and erodes consumer confidence in ESG systems (Delmas and Burbano, 2011; Lu et al., 2023). Although studies have identified the factors that influence ESG greenwashing, such as financial constraints (Zhang, 2022a), regulatory policies (Zhang, 2022a, Zhang, 2023a, Zhang, 2023b; Ren et al., 2025), and information supervision (Chen et al., 2024; Hu et al., 2023b), the role of retail investors' attention remains debated and underexplored. This study examines whether retail investor attention prompts companies to amplify their greenwashing activities and what motivates companies to alter their greenwashing tactics.

While existing literature focuses on how institutions, such as institutional investors and analysts affect corporate ESG performance (Kim et al., 2019; Lopez-de-Silanes et al., 2024; Park and Jang, 2021; Zhu et al., 2025), the impact of retail investors, is relatively understudied despite their crucial role in the market. This is particularly important in China, where retail investors account for a substantial share in the Chinese market, distinguishing it from Western countries where institutional investors play a more dominant role (Tan et al., 2023). Therefore, an investigation of the influence of retail investors is imperative for a comprehensive understanding of greenwashing. Retail investors' behavior can significantly influence corporate behavior which includes corporate transparency, sustainability practices, market value, and shareholder return priorities (Chen and Wu, 2022; Cheng et al., 2021; Hao, 2023; Ming et al., 2023; Zhao et al., 2023). Retail investors' attention on ESG can influence corporate actions, potentially curbing greenwashing behaviors, or unintentionally exacerbating them. Uncovering the relationship between them helps ensure genuine corporate ESG efforts, safeguard retail investors by identifying greenwashing risks, and promote better regulatory supervision.

In recent years, environmental consciousness among retail investors has surged, increasing their scrutiny power over corporate environmental practices. Retail investor attention can either curb or exacerbate corporate greenwashing. This scrutiny pressures companies to enhance their environmental performance and increasingly impacts corporate management strategies (Pope et al., 2023; Yue and Li, 2023). If the firms' ESG practices are inconsistent with their claims, they may be at risk of public criticism. In this case, retail investor attention facilitates the detection of corporate “hypocrisy,” and in turn, mitigates ESG greenwashing. However, retail investors typically do not possess the sophisticated information gathering and analysis skills of professional investors. They are also more vulnerable to corporate spin and marketing tactics, which may obscure the true state of a company's ESG performance. Consequently, with increasing retail investor attention, companies are tempted to use greenwashing as a strategy to captivate retail investors.

This study focuses on Chinese A-share listed companies for several reasons. First, China has issued various ESG policies, thereby compelling corporations to embrace ESG principles. Yet, the relatively weaker investor protection mechanisms and a lower level of transparency in China (Hu et al., 2023a) could potentially lead to a higher incidence of greenwashing among companies. This unique context provides fertile ground for investigating the authenticity of corporate ESG engagements. Second, retail investors are pivotal in shaping market dynamics and their influence on corporate behavior is readily observable in China's stock market (He et al., 2022a, He et al., 2024; Hirshleifer et al., 2018). This offers a distinct advantage for studying the direct and indirect impacts of retail investors on corporate ESG strategies. Last, as an emerging economy, China's experiences and lessons in the realm of ESG can serve as valuable insights for other developing nations. The findings of this study offer actionable policy recommendations that can guide the development of ESG practices in similar economic contexts worldwide.

This study examines the relationship between retail investor attention and corporate ESG greenwashing among A-share listed companies from 2011 to 2022. We find that retail investor attention induces ESG greenwashing. In addition, corporates focus more on ESG disclosure rather than actual performance to cater to the attention of retail investors. Greenwashing induced by retail investors is stronger in corporates with greater managerial myopia and higher financial constraints. Moreover, the presence of professional investors and good governance can mitigate such practices, which has practical implications for reducing greenwashing behavior.

This study contributes to existing literature in three ways. First, it highlights the often-neglected aspect of retail investors in China's capital market. While previous studies have lauded their positive impacts on corporate performance and innovation (Hao, 2023; He et al., 2022b), the potential adverse effects of retail investors' inherent limitations have been overlooked (Long et al., 2024). This study enriches the discourse on ESG greenwashing motivations from the perspective of retail investors. Examining retail investor attention as a lens for exploring corporate greenwashing can offer useful insights.

Second, delving into ESG greenwashing expands our comprehension of the economic repercussions of retail investor scrutiny. Retail investor attention can reduce the information asymmetry between corporations and investors (Chen and Wu, 2022), increase stock liquidity (Cheng et al., 2021), and enhance expected real estate investment returns (Yung and Nafar, 2017). However, extensive attention from retail investors can also increase specific risks to corporations (Hao and Xiong, 2021) and decrease investor returns during a pandemic (Smales, 2021). This study builds on the study of retail investor attention and examines the economic consequences if retail investor attention affects corporate greenwashing behavior. Using empirical methods to examine the correlation between retail investor attention and corporate greenwashing could provide significant empirical support for policymaking. Evaluating economic activities without considering such impacts is inaccurate because it underestimates the effect of retail investors.

Third, this study elucidates the mechanisms by which retail investors influence corporate decisions towards greenwashing. Public attention increases selective disclosure of environmental information by mechanism of fluffing (Pope et al., 2023) and public pressure increases ESG greenwashing by exacerbating managerial myopia (Long et al., 2024). We find that investor attention induces greenwashing through two channels: financial constraint and managerial myopia. We also examine the role of professional investors and corporate governance. These results suggest practical policy tools to mitigate greenwashing, including mandatory disclosure of ESG (enhanced regulation), alleviation of managerial myopia (better corporate management), and scrutiny of professional investors (third-party supervision). Overall, our study examines the mechanism underlying the impact of retail investor attention on ESG greenwashing and provides practical insights for improving the construction of an ESG system.

The rest of this paper is organized as follows: Section 2 reviews the literature and proposes the hypotheses. Section 3 describes the data and presents the proposed model. Section 4 presents the empirical results and robustness checks, explores the mechanism, and discusses economic consequences. Section 5 concludes the study.

2. Literature and hypotheses

2.1. Corporate ESG greenwashing

An increasing number of corporations are engaging in greenwashing, providing deceptive information to consumers regarding their ESG performance. Several factors are known to influence greenwashing, both external (regulatory and market) and internal drivers (organizational and individual) (Delmas and Burbano, 2011). Firms engage in ESG greenwashing to meet external and regulatory requirements (Liu et al., 2024; Zhang, 2022b). For instance, environmental regulations including command-and-control regulations (Liao et al., 2023; Zhang et al., 2023a; Zhou et al., 2024), market-based regulations, and voluntary regulations (Zhang, 2023b), can effectively suppress corporate ESG greenwashing.

A robust internal governance environment can curb corporate ESG greenwashing (Yu et al., 2020; Deng et al., 2024; Li et al., 2024a). Furthermore, financial situations drive corporate greenwashing, and enterprises facing financial constraints are more inclined to engage in speculative activities such as greenwashing (Zhang, 2022c). Additionally, individual corporate and board characteristics influence greenwashing behavior (Chen and Dagestani, 2023). Technological innovations such as digitalization also curb greenwashing by alleviating financial constraints and easing management costs (Ren et al., 2023; Xu et al., 2023; Xu et al., 2024; Zhang et al., 2023c; Zhang, 2024).

However, whether retail investor attention effectively curbs or exacerbates greenwashing remains a subject of debate and warrants further investigation. This is debatable as retail investor attention reduces information asymmetry between investors and firms, thereby mitigating the likelihood of greenwashing activities (Long et al., 2024; Ming et al., 2023). Conversely, retail investor attention exacerbates greenwashing by increasing selective disclosure without a genuine commitment to sustainable practices (Pope et al., 2023).

2.2. Influence of retail investor attention

The efficient market theory suggests that investors are entirely rational, homogeneous, and capable of fully accessing and analyzing information, thus effectively addressing the information asymmetry between themselves and corporations. However, investors' attention and capacity for information analysis are limited, allowing them to make investment decisions within the confines of their finite energy. This limitation can lead to myopic behavior and irrational actions, thereby preventing the realization of an efficient market. This phenomenon is particularly pronounced among retail investors, who, unlike professional investors, cannot leverage team collaboration, big data models, or other methods to collect and process information. Consequently, their investment decisions are often based on an insufficient and incomplete informational foundation, providing corporations with opportunistic moments. Corporations can adjust their information disclosure practices and selectively disclose ESG information in response to retail investor attention.

Retail investor attention is reported to improve corporate environmental performance (Ming et al., 2023; Zhao et al., 2023), promote innovation (Hao, 2023; He et al., 2022a), and reduce information asymmetry (Chen and Wu, 2022). However, excessive retail investor attention increases idiosyncratic risks to corporations (Hao and Xiong, 2021), reduces the accuracy of analysts' earnings forecasts (Zhang, 2023b), and decreases investor returns during a pandemic (Smales, 2021). It may also encourage selective disclosure (Pope et al., 2023), cause mispricing (Li et al., 2023a), and lead to herd behavior (Hsieh et al., 2020). Although a considerable body of literature reveals the influence of retail investor attention, there is no consensus on how retail investor attention influences greenwashing. We contribute to this debate by examining the causal relationship between retail investor attention and corporate greenwashing.

2.3. Hypothesis development

As consumers become increasingly environmentally conscious, companies are prompted to engage in ESG as a strategy to cultivate a green corporate image, attract consumers, and secure a competitive advantage (Delmas and Burbano, 2011; Laufer, 2003, Wang et al., 2023a). However, based on limited attention theory, an investor is easily distracted (Hirshleifer et al., 2018) and their ability to identify and process information is also reduced (Hao and Xiong, 2021). The issue of information asymmetry is prevalent among retail investors in China's capital market, underscoring their susceptibility to misinformation. This asymmetry is evident with regard to ESG, where companies dominate the discourse through sustainability reports that may not accurately reflect their ESG achievements. Retail investors who lack the resources for a thorough analysis often rely on these potentially manipulated reports, inadvertently encouraging companies to engage in greenwashing (Yuan et al., 2024). This misinformation compromises retail investors' decision-making and contributes to market inefficiencies, perpetuating a cycle of greenwashing.

The spotlight theory (Pope et al., 2023) also points out that public attention promotes corporate selective disclosure behaviors. Retail investor attention is a driving force that encourages companies to project green initiatives to enhance their reputation and secure broader social support. Hence, we propose hypothesis 1a.

Hypothesis 1a

To cater to the attention of retail investors, corporates focus more on ESG disclosure rather than actual performance, which induces greenwashing.

Organizational legitimacy and stakeholder theories suggest that governments, investors, and consumers prefer to support businesses that actively engage in ESG practices (Silva, 2021). This preference, to some extent, translates into increased legitimacy support for these companies, strategically driving them to enhance their ESG efforts. Thus, greater retail investor attention increases corporate ESG performance. Moreover, it is possible that firms, for fear of environmental accidents, are incentivized to increase their actual ESG performance under the scrutiny of retail investors (Ming et al., 2023). Hence, we propose the following hypothesis.

Hypothesis 1b

Retail investor attention enhances scrutiny on corporations, reducing their greenwashing practices.

When faced with financial constraints, firms tend to intensify greenwashing in response to retail investor attention. Many Chinese companies have high short-term debt ratios owing to financial turbulence and limited financing options (Harford et al., 2014; Lee et al., 2024). In particular, some small- and medium-sized corporations and younger firms face more financial challenges than large ones (Fee et al., 2009; Lee et al., 2024). These financially constrained firms typically have increased liquidity risks and must rely more on short-term debts (Harford et al., 2014). While these firms struggle to secure support from the capital market and circumvent liquidity crises, they are more likely to shirk their ESG responsibilities (Zhang, 2022b). Meanwhile, to cater to retail investors that favor corporations with better ESG, these firms signal improved ESG performance through the practice of “not walking the talk” so that they can enhance their reputation and attract capital.

Additionally, engaging in ESG often entails considerable upfront costs for companies. A company that fulfills corporate environmental and social obligations does not immediately have enhanced financial performance, rather yields positive outcomes only in the long run (Cheng et al., 2014; Wolf, 2014). Hence, a greener transformation may negatively impact short-term financial performance (Fisher-Vanden and Thorburn, 2011) and is not favored by financially constrained firms. In this context, ESG greenwashing becomes a strategic choice for constrained companies as they struggle to balance short-term financial needs with ESG images. Hence, we propose the following hypothesis:

Hypothesis 2

Greenwashing induced by retail investors is stronger in companies with higher financial constraints.

Organizational factors, such as managerial levels, also influence corporate greenwashing. The managerial myopia theory suggests that an excessive focus on short-term actions at the expense of long-term projects amplifies the likelihood of corporations engaging in greenwashing in response to retail investor attention (Holden and Lundstrum, 2008; Stein, 1988). Myopic managers face short-term pressure to increase stock prices and tend to underinvest in long-term assets (Mizik, 2010). Firms with short-sighted managers may also unintentionally neglect long-term sustainability efforts and subconsciously promote greenwashing. Furthermore, the catering theory implies that myopic management usually tries to cater to irrational investor enthusiasm for ESG initiatives (Baker and Wurgler, 2004), even if such practices do not lead to substantial long-term benefits. Therefore, companies with greater managerial myopia prioritize green images over genuine efforts and are more likely to resort to ESG greenwashing.

Hypothesis 3

Greenwashing induced by retail investors is stronger in corporates with more managerial myopia.

In addition to retail investors, professional investors are important stakeholders in companies and hold around 40 % of the shares of A-share firms (Chen and Xie, 2022). Professional investors possess stronger financial and professional resources while also paying more attention to non-financial policy orientation and public needs (Chen and Xie, 2022). They possess the expertise to evaluate the authenticity of ESG statements as they have access to ample data and can utilize complex analytical tools. Professional investors also attach importance to environmental and governance aspects than their counterparts (Kim et al., 2019; Park and Jang, 2021). Thus, in the absence of professional investor scrutiny, companies are less likely to implement costly and complex authentic ESG reforms, prefer short-term greenwashing measures, or attract investments from less professional retail investors. Hence, we propose the following hypothesis.

Hypothesis 4

The presence of professional investors can mitigate the impact of retail investor attention.

Companies with weaker governance are more inclined to greenwashing, a tendency exacerbated by retail investor attention. Strong governance indicates robust supervision, transparent reporting, and accountability, which are critical for good ESG performance (Khan, 2011; Zhang, 2024). Corporations with weak governance fail to operate in a responsible, effective, and transparent manner (Jamali et al., 2008; Solomon, 2020). Conversely, companies with strong governance can maintain ethical standards, ensure accountability, and reduce financial risks (Chan and Cheung, 2012). ESG information contains heavy textual content, enabling firms to manipulate it for ambiguity and obscure their actual ESG performance (Nadeem, 2022). Firms with weak governance manipulate their ESG disclosures to appear more environmentally and socially responsible than they actually are (Wang et al., 2023). In this situation, retail investor attention further exacerbates corporations' greenwashing tendencies. Rather than making sincere ESG improvements, these corporations prioritize misleading ESG claims to maintain a favorable image. Consequently, the lack of robust governance makes it easier for these corporations to engage in greenwashing without internal surveillance. Hence, we propose the following hypothesis.

Hypothesis 5

Corporates with weaker governance have more pronounced greenwashing driven by retail investor attention.

According to signaling and stakeholder theories, engaging in ESG greenwashing can enhance a corporation's short-term financial performance, particularly when facing higher retail investor attention. Based on the signaling theory, in markets with asymmetric information, companies use signals (e.g., sustainability reports and environmental initiatives) to convey their quality or commitment to certain values (Lee et al., 2022). Firms may engage in greenwashing to send a positive signal to investors and stakeholders, implying that they are environmentally responsible. Even if sustainability claims are exaggerated or false, they can attract investments and enhance short-term financial performance.

According to stakeholder theory, corporate success depends on managing relationships with various stakeholders, including large number of retail investors (Harrison and Wicks, 2013; Jamali, 2008). As key stakeholders, retail investors often value ESG. Greenwashing can temporarily attract more stakeholders, leading to increased short-term investment and improved short-term financial benefits (Teti et al., 2024). Hence, we propose the following hypothesis.

Hypothesis 6

Greenwashing can temporarily enhance corporate financial performance, particularly when a firm receives greater retail investor attention.

3. Research design

3.1. Sample

We examine public companies in China from 2011 to 2022 to investigate the nexus between retail investor attention and ESG greenwashing. Following prior studies, we use the Baidu search volume index as a proxy for retail investor attention (Li et al., 2023b; Ming et al., 2023). We define greenwashing as the gap between a corporation's reported ESG disclosure score and its actual ESG performance. These scores are derived from esteemed sources including Bloomberg, Huazheng, Wind, and the CNRDS ESG database. Both financial data and indices of retail investor attention are sourced from the CSMAR and CNRDS databases.

The timeframe for our sample begins in 2011, coinciding with the departure of Google from China in 2010. We have excluded companies that have been subjected to special treatment, such as those marked with ST, *ST, and PT labels, and those within the financial sector. Additionally, any firm-year datasets missing key variables have been removed. After these exclusions, our final dataset consists of 10,403 firm-year observations. To control for the effects of outliers, we applied a winsorization process to all continuous variables, truncating them at the 1 % level.

3.2. Key variables and model specifications

3.2.1. Measurement for ESG greenwashing

Following the methodologies of Zhang (2022a) and Long et al. (2024), greenwashing is defined as the discrepancy between the standardized ESG disclosure score and standardized ESG performance score, as illustrated in Eq. 1. We use the maximum difference method to standardize the ESG score annually. The disclosure score is sourced from the Bloomberg ESG database, whereas the performance score is derived from the Sino-Securities ESG Index (Huazheng ESG).(1)

{GW}_{it} = \frac{{ESG}_{dis i, t} - {minESG}_{dis i, t}}{{maxESG}_{dis i, t} - {minESG}_{dis i, t}} - \frac{{ESG}_{per i, t} - min {ESG}_{per i, t}}{max {ESG}_{per i, t} - min {ESG}_{per i, t}}

3.2.2. Measurement for retail investor attention

Referring to literature (Li et al., 2023a; Ming et al., 2023), we quantify retail investor attention by adopting a logarithm of one plus the average number of Baidu search queries for a firm (Attention). Given Baidu's dominance as the primary search engine in China, this metric is a robust indicator of investor interest, surpassing other forms of media coverage in effectiveness (Da et al., 2011). Retail investors predominantly utilize online platforms for information on companies, a method that is more accessible than the approaches typically employed by institutional investors, such as site visits and direct communications with company executives.

3.2.3. Controls

We incorporate several firm-level financial characteristics as control variables following existing studies (Hu et al., 2023a; Zhang, 2023a, Zhang, 2023b). These include return on assets (ROA), firm size (Size), age since listing (Age), financial leverage (Lev), and corporate governance measures such as board size, board independence (Independence), institutional ownership, and analyst following (Analysts). Definitions for all variables are detailed in Appendix A.

3.3. Model

To examine hypothesis 1, we employ the following regression model (Eq. 2):(2)

{GW}_{i, t + 1} = β_{0} + β_{1} {Attention}_{i, t} + Control + δ_{i} + θ_{t} + ε_{i, t}

where i and t index the corporate i, and year t.

δ_{i}

and

θ_{t}

represent fixed effects for the corporation and year. A positive and significant

β_{1}

in our hypothesis testing (H1) would confirm the proposed relationship.

For hypotheses 2 to 5, we employ Eq. (2) but conduct a regression analysis on different subsamples. Specifically, we test hypothesis 2 by dividing the full sample into groups with low and high financial constraints. For hypothesis 3, we focus on managerial myopia by segmenting the sample into groups with low and high levels of managerial myopia. Hypothesis 4 examines the impact of professional investor presence by categorizing the sample into low and high levels of professional investor presence. Lastly, hypothesis 5 evaluates the effect of corporate governance by differentiating between groups with low and high governance levels.

Hypothesis 6 investigates whether firms that engage in ESG greenwashing reap benefits when retail investor attention is higher. To test this, we use Eq. (3) and perform the regression analysis on samples with higher and lower levels of Attention.(3)

{ROA}_{i, t + 1} = β_{0} + β_{1} {GW}_{i, t} + Control + δ_{i} + θ_{t} + ε_{i, t}

4. Empirical results

4.1. Summary statistics

In Panel A of Table 1, the average GW is −0.343, aligning with findings from Zhang (2023a). Additionally, the mean Attention value is 12.926, consistent with previous literature. The sample companies exhibit a financial leverage of 47.7 %, board independence of 37.6 %, and a return on assets of 4.6 %.

Table 1. Descriptive statistics.

Panel A: Summary statistics
Variable	N	Mean	SD	p25	p50	p75
GW	10,403	−0.343	0.182	−0.471	−0.366	−0.238
GWZEE	10,403	−0.027	1.148	−0.823	−0.142	0.625
GW2	10,403	−0.239	0.3	−0.454	−0.273	−0.047
WindGW	5124	−0.187	0.18	−0.305	−0.193	−0.078
CNRDSGW	10,402	−0.105	0.198	−0.229	−0.108	0.01
Attention	10,403	12.926	1.325	12.508	12.973	13.454
Attention2	10,403	7.02	0.969	6.567	7.028	7.523
Size	10,403	23.185	1.313	22.255	23.074	23.973
Lev	10,403	0.477	0.2	0.323	0.49	0.631
ROA	10,403	0.046	0.059	0.016	0.039	0.074
Boardsize	10,403	2.179	0.203	2.079	2.197	2.197
Analysts	10,403	1.955	1.191	1.099	2.197	2.944
Institutional	10,403	0.562	0.224	0.407	0.59	0.732
Independent	10,403	0.376	0.055	0.333	0.364	0.429

Panel B: Pearson correlation matrix
Empty Cell	GW	Attention	Size	Lev	ROA	Boardsize	Analysts	Institutional
GW	1
Attention	0.066***	1
Size	0.165***	0.253***	1
Lev	0.100***	0.141***	0.516***	1
ROA	-0.060***	−0.067***	−0.108***	−0.436***	1
Boardsize	0.089***	0.067***	0.200***	0.124***	−0.057***	1
Analysts 分析师	0.026***	0.086***	0.255***	−0.104***	0.427***	0.036***	1
Institutional 制度	0.131***	0.036***	0.403***	0.171***	0.087***	0.187***	0.192***	1
Independent 独立	-0.028***	0.044***	0.084***	0.018*	0.013	−0.442***	0.034***	0.018*

This table reports the descriptive statistics of the variables of the sample firms in China from 2011 to 2022. All continuous variables have been winsorized at the 1st and 99th percentiles. Detailed variable definitions are provided in Appendix A. ***, **, and * indicate that the correlation coefficient is statistically significant at 1 %, 5 %, or 10 %, respectively.
该表报告了 2011—2022 年中国样本企业变量的描述性统计。所有连续变量均已在第 1 个和第 99 个百分位数处进行排序。附录 A 中提供了详细的变量定义。***、** 和 * 表示相关系数分别在 1 %、5 % 或 10 % 处具有统计学意义。

In Panel B of Table 1, Attention exhibits a positive coefficient of correlation with GW, suggesting that retail investor attention tends to facilitate corporate ESG greenwashing. Notably, the highest correlation coefficient observed is 0.516, which exists between Lev and Size. Furthermore, the mean Variance Inflation Factor (VIF) in our sample is 1.44, which is significantly below the commonly accepted threshold of 10. This indicates that multicollinearity is not a concern in our dataset.
在表 1 的 B 图中， 注意力与 GW 呈正相关系数，表明散户投资者的注意力往往会促进企业 ESG 漂绿。值得注意的是，观察到的最高相关系数为 0.516，介于 Lev 和 Size 之间。此外，我们样本中的平均方差通胀因子（VIF）为 1.44，明显低于普遍接受的阈值 10。这表明多重共线性在我们的数据集中不是问题。

As presented in Table 2, Search significantly and positively affects corporate greenwashing, regardless of whether control variables are included. This suggests that companies with greater retail investor attention engage in greenwashing activities. Specifically, a one standard deviation increase in retail investor attention causes a 5.8 % standard deviation increase in greenwashing activities (0.008 × 1.325/0.182), which is economically significant. Additionally, companies with lower returns on assets and higher financial leverage are more likely to engage in greenwashing.
如表 2 所示，无论是否包含控制变量，搜索都会对企业漂绿产生显着和积极的影响。这表明散户投资者关注度较高的公司从事漂绿活动。具体来说，散户投资者关注度增加一个标准差会导致漂绿活动增加 5.8 % 标准差（0.008 × 1.325/0.182），这具有经济意义。此外，资产回报率较低、财务杠杆率较高的公司更有可能进行漂绿。

Table 2. Retail investor attention and corporate greenwashing.
表 2.散户投资者关注和企业漂绿。

VARIABLES 变量	${GW}_{i, t + 1}$	${GW}_{i, t + 1}$
Empty Cell	(1)	(2)
${Attention}_{i, t}$	0.008***	0.008***
	(2.941)	(3.030)
${Size}_{i, t}$		−0.006
		(−0.929) （−0.929）
${Lev}_{i, t}$		0.057***
		(2.592)
${ROA}_{i, t}$		−0.249***
		(−5.966) （−5.966）
${Boardsize}_{i, t}$		0.019
		(0.858)
${Analysts}_{i, t}$		−0.000
		(−0.150) （−0.150）
${Insitutional}_{i, t}$		0.004
		(0.178)
${Independent}_{i, t}$		0.045
		(0.778)
Constant 不断	−0.447***	−0.398***
	(−12.721) （−12.721）	(−2.664) （−2.664）

Observations 观察	10,403	10,403
Adjusted R-squared 调整后的 R 平方	0.578	0.583
Year FE FE 年级	Yes 是的	Yes 是的
Company FE 公司 FE	Yes 是的	Yes 是的

This table shows the impact of retail investor attention on corporate greenwashing. The dependent variable is GW, which is the difference between standardized ESG disclosure and ESG performance scores. We adopt maximum difference normalization to standardize the ESG scores for each year. The disclosure score is acquired from the Bloomberg ESG database and the performance score, the Sino-Securities ESG Index (Huazheng ESG). The independent variable is the natural logarithm of one plus the Baidu Internet Search times for each firm. Other variable definitions are provided in Appendix A. Company and year fixed effects are included. Standard errors are clustered at the firm level and T-statistics are shown in parentheses. All continuous variables are winsorized at the 1 % and 99 % levels. ***, **, and * indicate that the regression coefficient is statistically significant at 1 %, 5 %, or 10 %, respectively.
该表显示了散户投资者关注对企业漂绿的影响。因变量是 GW，它是标准化 ESG 披露与 ESG 绩效评分之间的差值。我们采用最大差异归一化来标准化每年的 ESG 分数。披露评分来自彭博 ESG 数据库，绩效评分为中证 ESG 指数（华征 ESG）。自变量是每家公司的自然对数加百度互联网搜索次数的 1。附录 A 中提供了其他变量定义。包括公司和年份固定效应。标准误差在公司层面聚类，T 统计量显示在括号中。所有连续变量都在 1 % 和 99 % 水平上进行双向化。、** 和 * 表示回归系数分别在 1 %、5 % 或 10 % 处具有统计学意义。

In our analysis, we find that firms with lower Return on Assets (ROA) are more likely to engage in greenwashing. This observation is consistent with that of Liu and Li (2024). Companies facing earnings pressure are more inclined to resort to ESG greenwashing to enhance their public image. Additionally, firms with higher financial leverage are more prone to greenwashing, consistent with Li et al., 2024b. These firms, burdened by higher financial constraints, may view greenwashing as a strategic tool to alleviate investor concerns and improve their market standing.
在我们的分析中，我们发现资产回报率（ROA）较低的公司更有可能进行漂绿。这一观察结果与 Liu 和 Li （2024）的观察结果一致。面临盈利压力的企业更倾向于诉诸 ESG 漂绿，以提升公众形象。此外，财务杠杆率较高的公司更容易发生漂绿，这与 Li 等人，2024b 一致。这些公司承受着更高的财务限制，可能将漂绿视为减轻投资者担忧和提高市场地位的战略工具。

4.2. Robustness checks 4.2. 鲁棒性检查

In Panel A of Table 3, we explored alternative measures for greenwashing to mitigate measurement errors. Initially, we applied a standard deviation model to standardize the ESG scores annually, yielding the GWZEE metric as outlined in Eq. 4. Next, we normalized the ESG scores annually and by industry, resulting in the GW2 metric. Finally, we substituted the Huazheng ESG score with the Wind ESG and CNRDS ESG scores to produce the Wind GW and CNRDS GW, respectively. The Attention coefficients consistently align with our baseline results, confirming the robustness of our conclusions.
在表 3 的 A 图中，我们探讨了漂绿的替代措施，以减少测量误差。最初，我们应用标准差模型每年对 ESG 分数进行标准化，得出 GWZEE 指标，如公式 4 所示。接下来，我们每年对 ESG 分数进行标准化，并按行业进行标准化，从而得出 GW2 指标。最后，将华征 ESG 评分代入 Wind ESG 和 CNRDS ESG 评分，分别生成 Wind GW 和 CNRDS GW。注意力系数始终与我们的基线结果一致，证实了我们结论的稳健性。(4)

{GW}_{it} = \frac{{ESG}_{disclosure, it} - \bar{{ESG}_{disclosure, it}}}{σ_{{ESG}_{disclosure}}} - \frac{{ESG}_{performance, it} - \bar{{ESG}_{performance, it}}}{σ_{{ESG}_{performance}}}

Table 3. Robustness checks.
表 3.鲁棒性检查。

Panel A: Alternative measures on ESG greenwashing 小组 A：ESG 漂绿的替代措施
Empty Cell	(1)	(2)	(3)	(4)
VARIABLES 变量	${GWZEE}_{i, t + 1}$	$GW 2_{i, t + 1}$	$Wind {GW}_{i, t + 1}$	$CNRDS {GW}_{i, t + 1}$
${Attention}_{i, t}$	0.049***	0.010**	0.006**	0.006**
	(2.778)	(2.154)	(2.280)	(2.254)

Observations 观察	10,403	10,403	5124	10,402
Adjusted R-squared 调整后的 R 平方	0.540	0.442	0.688	0.592
Control 控制	Yes 是的	Yes 是的	Yes 是的	Yes 是的
Year FE FE 年级	Yes 是的	Yes 是的	Yes 是的	Yes 是的
Company FE 公司 FE	Yes 是的	Yes 是的	Yes 是的	Yes 是的

Panel B: Alternative measures for retail investor attention
Empty Cell	(1)	(2)	(3)
VARIABLES	${GW}_{i, t + 1}$	${GW}_{i, t + 1}$	${GW}_{i, t + 1}$
$Attention 2_{i, t}$	0.017***
	(3.964)
${Guba}_{i, t}$		0.013***
		(4.286)
${GubaComment}_{i, t}$			0.012***
			(5.294)
Observations	10,403	10,403	10,403
Adjusted R-squared	0.584	0.584	0.585
Control	Yes	Yes	Yes
Year FE	Yes	Yes	Yes
Company FE	Yes	Yes	Yes

Panel C: Alternative fixed effects
Empty Cell	(1)	(2)	(3)
VARIABLES	${GW}_{i, t + 1}$	${GW}_{i, t + 1}$	${GW}_{i, t + 1}$
${Attention}_{i, t}$	0.011***	0.009***	0.008**
	(3.057)	(2.617)	(2.329)
Growth	−0.000***	−0.000***	−0.000***
	(−11.533)	(−3.803)	(−6.551)
Big4	0.054***	0.047**	0.050***
	(2.883)	(2.571)	(2.725)
Duality	−0.008	−0.009	−0.006
	(−1.152)	(−1.299)	(−0.789)
ExecShare	0.044	0.038	0.022
	(0.973)	(0.812)	(0.474)
Top1	0.000	0.000	0.000
	(0.660)	(0.799)	(0.427)
Observations	9275	9275	9275
Adjusted R-squared	0.586	0.590	0.600
Control	Yes	Yes	Yes
Year	Yes	No	No
Province×Year FE	No	Yes	No
Industry×Year FE	No	No	Yes
Company FE	Yes	Yes	Yes

VARIABLES	${GW}_{i, t + 1}$	${GW}_{i, t + 1}$	${GW}_{i, t + 1}$
Panel D: Quantile regression	Empty Cell	Empty Cell	Empty Cell
Empty Cell	(1)	(2)	(3)
Empty Cell	0.25	0.5	0.75
${Attention}_{i, t}$	0.006**	0.005***	0.007**
	(2.306)	(2.583)	(2.164)

Psedu R2	0.007	0.008	0.007
Observations	10,403	10,403	10,403
Control	Yes	Yes	Yes
Year FE	Yes	Yes	Yes
Company FE	Yes	Yes	Yes

Panel E: Oster analysis
Oster analysis
$1.3 R^{2}; δ = 1$ (1) “True” $β$ Bound	Estimated $β$ from eq. (2) =0
[0.008, 0.0084]	4160

This table reports the results of robustness checks. In Panel A, we use alternative measures for greenwashing. We adopt the Z Score normalization method to standardize the ESG score by each year and get the GWZEE. We adopt the maximum difference normalization to standardize the ESG score by each year and each industry and get the GW2. Besides, we employ Wind ESG and CNRDS ESG to measure the ESG performance and acquire WindGW, and CNRDSGW, respectively. Table B adopts alternative measures for retail investor attention. First, we replace the total Baidu search index with an annually median Baidu search index and acquire Attention2. Next, we utilize the natural logarithm of one plus the post number in EastMoney (Guba) to measure retail investor attention. Besides, we also adopt the comments in posts of EastMoney (GubaComment) as the third proxy. In Panel C, we incorporate alternative fixed effects in regressions. In Panel D, we perform quantile regression. In Panel E, we conduct the Oster analysis to address the possible concern of omitted variables. All other variable definitions are in Appendix A. Company and year-fixed effects are included. Standard errors are clustered at the firm level, and T-statistics are shown in parentheses. All continuous variables are winsorized at 1 % and 99 % levels. ***, **, and * indicate that the regression coefficient is statistically significant at 1 %, 5 %, or 10 %, respectively.

To further validate our findings, we experimented with alternative proxies for retail investor attention. Initially, we replaced the total Baidu search index with the annual median Baidu search index, resulting in the metric Attention2. Subsequently, we employed the natural logarithm of one plus the number of posts on EastMoney (Guba) as another measure of investor attention. Additionally, we used the number of comments on EastMoney posts (GubaComment) as a third proxy. The results presented in Panel B of Table 3 consistently show that the influence of retail investor attention on greenwashing persists across different measures.

In response to various ESG policies implemented in China, such as the carbon emissions trading pilot program (Chen et al., 2022; Li et al., 2022), which aims to reduce corporate carbon emissions, we controlled for potential confounding factors. These include time-variant unobservable factors at the provincial and industry levels by incorporating Province×Year and Industry×Year fixed effects, as shown in Panel C of Table 3. This effect of Attention is consistent with our earlier findings.

Given that OLS regression primarily captures the average impact and is susceptible to outliers (Li et al., 2023b), we conducted quantile regressions at the 25th, 50th, and 75th percentiles to provide a more robust analysis across the distribution of greenwashing. Panel D of Table 3 affirms that the promotional effect of retail investor attention on greenwashing is robust across different quantiles.

Panel E of Table 3 presents the results of an Oster analysis (Oster, 2019), that evaluates the potential impact of omitted variables on our findings. The calculated range for the actual coefficient, β, spans from 0.008 to 0.0084, with no overlap around zero. This finding indicates that it is highly unlikely for any significant variables not included in our analysis to diminish the confirmed findings. Furthermore, the coefficient for Attention will only become insignificant if the influence of unaccounted variables exceeds that of the included variables by a ratio of 4160—a highly unlikely scenario.

4.3. Addressing endogeneity concerns

Despite the extensive robustness checks described in Section 4.3, potential endogeneity issues remain a concern. For instance, the managerial abilities of CEOs might influence corporate ESG disclosures, real activities, and appeal to retail investors. Moreover, corporations may intentionally adopt greenwashing to attract retail investors, leading to reverse causality.

To address these concerns, we utilize the e-interaction platform in Shanghai and Shenzhen Stock Exchanges. This platform facilitates direct communication between investors and corporations, significantly aiding retail investors in obtaining information directly from firms (Xu et al., 2024). This setup is likely to attract increased attention from retail investors. We conducted a Difference-in-Differences (DiD) analysis using the following model.(4)

{GW}_{i, t + 1} = β_{0} + β_{1} E - {Interact}_{i, t - 1} + Co n trol + δ_{i} + θ_{t} + ε_{i, t}

Here, E−Interact indicates whether a corporate has engaged in e-interaction with investors. This variable functions similarly to the interaction term in standard DiD analyses. The standard DiD's Treat and Post effects are absorbed by fixed effects. In Table 4 Panel A, E-Interact is positively significant, suggesting that online interaction platform increases corporate greenwashing activities.

Table 4. Addressing the endogeneity.

Panel A: Difference in difference analysis.
Empty Cell	(1)	(2)
VARIABLES	${GW}_{i, t + 1}$	${GW}_{i, t + 1}$
$E - {Interact}_{i, t}$	0.018**	0.022**
	(1.979)	(2.382)

Observations	10,361	10,361
Adjusted R-squared	0.577	0.582
Control	No	Yes
Year FE	Yes	Yes
Company FE	Yes	Yes

Panel B: Instrument variable regression.
Empty Cell	Empty Cell	(1)	Empty Cell	(2)	Empty Cell
VARIABLES	Empty Cell	${Attention}_{i, t}$	Empty Cell	${GW}_{i, t + 1}$	Empty Cell
$Attention {IV}_{i, t}$		0.180***
		(2.838)
${Predicted Attention}_{i, t}$				0.056*
				(1.653)

Observations		10,360		10,360
Control		Yes		Yes
Year FE		Yes		Yes
Company FE		Yes		Yes
F		25.04		7.80
Cragg-Donald Wald F		108.5
10 % Stock-Yogo weak ID test critical values		16.38

Panel A addresses the endogenous concern by exploiting the staggered corporate interaction with investors in Shanghai or Shenzhen Stock Exchange e-interaction platforms as exogenous to retail investor attention. E-Interact is a dummy variable that equals one if a firm has been questioned by investors, and zero, otherwise. Panel B performs the instrument variable regression, and we adopt the average retail investor attention in industry peer firms (excluding the firm itself) as the instrument variable. All other variable definitions are provided in Appendix A. Company and year fixed effects are included. Standard errors are clustered at the firm level and T-statistics are shown in parentheses. All continuous variables are winsorized at the 1 % and 99 % levels. ***, **, and * indicate that the regression coefficient is statistically significant at 1 %, 5 %, or 10 %, respectively.

Furthermore, we apply an Instrumental Variable (IV) regression to address endogeneity, following He et al. (2022b), which adopts the average retail investor attention as an IV. This choice is predicted based on the assumption that retail investors may compare a corporation with its industry peers, leading to higher attention levels if the peers are highly watched. This satisfies the relevance assumption of an IV. Additionally, peer attention levels are unlikely to directly influence a corporation's ESG greenwashing decisions, thereby meeting the exclusion restriction. In Panel B of Table 4, the first-stage F statistic exceeds 10, and Cragg-Donald Wald F statistic is greater than the 10 % Stock-Yogo critical values, indicating no concerns regarding weak instrumentation. The Predicted Attention variable shows a consistent and significant coefficient.

4.4. Mechanisms

4.4.1. Disclosure or real engagement

We discern whether retail investor attention primarily influences corporate ESG disclosure or actual ESG performance in Table 5 Panel A. The results indicate that Attention significantly promotes corporate ESG disclosure but has no discernible impact on ESG performance, indicating that corporations engage in greenwashing by enhancing their ESG disclosures without implementing substantial real-world ESG activities. This aligns with the observations of Ming et al. (2023), suggesting that retail investor attention facilitates corporate ESG disclosure.

Table 5. Channels of retail investor attention in facilitating greenwashing.

Panel A: Retail investor attention, Firms' ESG Disclosures, and ESG Performance
Empty Cell	(1)	(2)
VARIABLES	${Disclosure}_{i, t + 1}$	${Performance}_{i, t + 1}$
${Attention}_{i, t}$	0.363***	−0.061
	(3.441)	(−0.702)

Observations	10,403	10,403
Adjusted R-squared	0.821	0.564
Control	Yes	Yes
Year FE	Yes	Yes
Company FE	Yes	Yes

VARIABLES	${GW}_{i, t + 1}$	${GW}_{i, t + 1}$
Panel B: The channel of financial constraint	Empty Cell	Empty Cell
Empty Cell	(1)	(2)
Empty Cell	Low KZ	High KZ
${Attention}_{i, t}$	0.005	0.020***
	(0.997)	(2.934)
Coefficients difference (p-value)	0.000
Observations	4950	4953
Adjusted R-squared	0.604	0.589
Control	Yes	Yes
Year FE	Yes	Yes
Company FE	Yes	Yes

Panel C: The impact of managerial forward-looking
Empty Cell	(1)	(2)
Empty Cell	Low Forward-looking	High Forward-looking
VARIABLES	${GW}_{i, t + 1}$	${GW}_{i, t + 1}$
${Attention}_{i, t}$	0.016***	0.003
	(2.937)	(0.928)
Coefficients difference (p-value)	0.008
Observations	5009	5394
Adjusted R-squared	0.586	0.606
Control	Yes	Yes
Year FE	Yes	Yes
Company FE	Yes	Yes

This table reports the potential mechanisms by which retail investor attention reduces greenwashing. Panel A reports the impact of retail investor attention on ESG disclosure and performance. Disclosure refers to the ESG disclosure score acquired from the Bloomberg ESG database. Performance is the ESG performance score acquired from the Huazheng ESG database. Panel B reports the role of financial constraints in shaping the political connection and greenwashing relationship. KZ is the financial constraint index (Kaplan and Zingales, 1997). Panel C reports the impact of managerial forward-looking. Forward-looking is proxied by the natural logarithm of one plus forward-looking keywords in the MD&A section. All other variable definitions are provided in Appendix A. Company and year fixed effects are included. Standard errors are clustered at the firm level and T-statistics are shown in parentheses. All continuous variables are winsorized at the 1 % and 99 % levels. ***, **, and * indicate that the regression coefficient is statistically significant at 1 %, 5 %, or 10 %, respectively.

4.4.2. Financial constraint as a channel

One of the primary motivations for corporations to greenwash is to alleviate financial constraints, as noted by (Zhang, 2022b). We hypothesized that corporations use greenwashing to appeal to retail investors, thereby gaining easier access to external capital, especially under financial duress. To explore this, we utilized the Kaplan-Zingales (KZ) financial constraint indices (Kaplan and Zingales, 1997), segmenting the sample around the median value of financial constraint.

Panel B of Table 5 shows that the influence of retail investor attention on greenwashing is significantly more pronounced in corporations facing greater financial constraints. This finding supports our hypothesis that financially constrained corporations are compelled to engage in greenwashing.

4.4.3. Managerial myopia

Another hypothesis is that the myopic nature of retail investors, who often focus on short-term benefits, may encourage similar short-sighted approaches among corporations, leading to increased greenwashing. To test this, we conducted a textual analysis of the Management Discussion and Analysis (MD&A) sections of annual reports (Li et al., 2021). We used logarithm of one plus the count of forward-looking keywords, such as “schedule” and “prepare,” as proxies for managerial foresight.

The findings, displayed in Panel C of Table 5, reveal that the effect of retail investor attention is more pronounced in corporations with less forward-looking perspectives. This result validates our expectation that a lack of long-term vision in management is correlated with a higher propensity for greenwashing.

4.5. Cross-sectional analysis

4.5.1. Role of professional investors

To understand the dynamics between professional and retail investor attention, we analyzed the moderating influence of professional investors. We used the corporate attention received from financial analysts as a proxy for professional investor attention. The findings in Panel A of Table 6 show that the influence of retail investor attention is significantly more pronounced in firms with fewer analysts. This finding suggests that the presence of professional investors weakens the influence of retail investor attention.

Table 6. Cross-sectional tests.

Panel A: The role of professional investors
Empty Cell	(1)	(2)
Empty Cell	Low Analysts	High Analysts
VARIABLES	${GW}_{i, t + 1}$	${GW}_{i, t + 1}$
${Attention}_{i, t}$	0.015**	0.004
	(2.059)	(1.079)
Coefficients difference (p-value)	0.020
Observations	4927	5476
Adjusted R-squared	0.578	0.617
Control	Yes	Yes
Year FE	Yes	Yes
Company FE	Yes	Yes

Panel B: The impact of corporate governance
Empty Cell	(1)	(2)
Empty Cell	Low Managerial	High Managerial
VARIABLES	${GW}_{i, t + 1}$	${GW}_{i, t + 1}$
${Attention}_{i, t}$	0.016*	0.004*
	(1.894)	(1.861)
Coefficients difference (p-value)	0.008
Observations	4961	4969
Adjusted R-squared	0.605	0.596
Control	Yes	Yes
Year FE	Yes	Yes
Company FE	Yes	Yes

This table reports the results of the cross-sectional tests of the effect of retail investor attention on greenwashing. In Panel A, we analyze the impact of professional investors' attention. We adopt the natural logarithm of one plus the number of analysts following in a firm to proxy the professional investor attention (Analysts). Panel B investigates the impact of managerial ownership. Managerial ownership is proxied by the shareholding percentage of total managerial ownership (Managerial). Panel C examines the impact of managerial environmental awareness proxied by the natural logarithm of environment-related keywords in the management discussion and analysis (MD&A) section of the annual report. All other variable definitions are provided in Appendix A. Company and year fixed effects are included. Standard errors are clustered at the firm level and T-statistics are shown in parentheses. All continuous variables are winsorized at the 1 % and 99 % levels. ***, **, and * indicate that the regression coefficient is statistically significant at 1 %, 5 %, or 10 %, respectively.

4.5.2. Role of corporate governance

We hypothesized that corporations with poor corporate governance tend to greenwash more to appeal to retail investors. To test this, we used managerial ownership as a proxy for agency costs, assuming that higher managerial ownership indicates better governance. Panel B of Table 6 shows that Attention is significantly higher in corporations with lower managerial ownership, supporting our hypothesis that weaker governance is correlated with more pronounced greenwashing driven by retail investor attention.

4.6. Economic consequence of greenwashing

Building on our findings that higher retail investor attention enables corporations to engage in greenwashing, we explored the economic outcomes associated with such behavior. Following Zhang (2023a), we used return on assets (ROA) in year t + 1 as a measure of firm financial performance.

The results in Table 7 demonstrate that greenwashing can temporarily enhance corporate financial performance, particularly when a firm receives greater attention from retail investors. This indicates that while firms may engage in greenwashing to attract retail investors, this strategy might yield financial benefits in the short term.

Table 7. The economic consequence of greenwashing.

VARIABLES	${ROA}_{i, t + 1}$	${ROA}_{i, t + 1}$
Empty Cell	(1)	(2)
Empty Cell	Low Attention	High Attention
${GW}_{i, t}$	−0.025	0.017**
	(−1.029)	(2.131)
Coefficients difference (p-value)	0.0000.002
Observations	5199	5204
Adjusted R-squared	0.304	0.446
Control	Yes	Yes
Year FE	Yes	Yes
Company FE	Yes	Yes

This table reports the results of the economic consequences of greenwashing for firms with high retail investor attention. The dependent variable is return on assets in year t + 1. All variable definitions are provided in Appendix A. Company and year fixed effects are included. Standard errors are clustered at the firm level and T-statistics are shown in parentheses. All continuous variables are winsorized at the 1 % and 99 % levels. ***, **, and * indicate that the regression coefficient is statistically significant at 1 %, 5 %, or 10 %, respectively.

In summary, our analysis suggests that increased greenwashing driven by retail investor attention leads to higher financial returns, highlighting a potential incentive for firms to continue such practices despite the potential long-term risks to reputation and regulatory compliance.

5. Conclusions

Through this study, we enrich the determinants of corporate greenwashing. Existing literature mainly focuses on the impact of institutions, such as analysts and institutional investors. However, retail investor—a crucial market participant—has been neglected. We contribute to this literature by highlighting the overlooked role of retail investors in ESG greenwashing. We also extend the economic consequences of retail investor attention. Previous studies find that retail investor attention influences market dynamics by impacting liquidity, returns, and risk, while its impact on ESG greenwashing is ignored. We examine the economic consequences and demonstrate that greenwashing can temporarily enhance corporate financial performance. Additionally, the mechanisms through which retail investor attention reshapes corporate greenwashing are identified. Excessive ESG disclosures, financial constraints, and managerial myopia are mechanisms through which retail investor attention exacerbates greenwashing. These findings emphasize the need for stronger ESG regulations, improved corporate governance, and enhanced supervision by professional investors.

The findings of this study offer clear and actionable implications for policymakers, regulatory bodies, and corporate governance. First, given the strong causal link found between retail investor attention and increased greenwashing, there is a critical need for stricter regulations around ESG disclosures. Regulators should consider implementing more rigorous standards and audits for ESG reporting to ensure that disclosures accurately reflect actual environmental performance. Second, we document that professional investors can curb greenwashing. Policy makers should encourage financial analysts' active and informed participation in corporate governance to reduce the prevalence of greenwashing. Last, our results indicate that stronger corporate governance inhibits the effect of retail investors. Strengthening the requirements for managerial ownership and board supervision can help align the interests of management with long-term sustainable practices, rather than short-term gains from greenwashing.

Although our study provides valuable insights into the impact of retail investor attention on ESG greenwashing, it has some limitations as well. First, our measure of ESG greenwashing is based on ESG disclosure ratings (Bloomberg ESG) and performance ratings (Huazheng ESG). These widely used ratings may be subject to potential manipulation by firms. Future studies could consider alternative proxies for ESG greenwashing, such as ESG expenditure, which may provide a more direct and objective measure of a firm's actual ESG performance.

Second, we used the Baidu search volume index as a proxy for retail investor attention. However, the index may contain noise, as searches could be driven by various factors unrelated to investment decisions, such as individuals seeking employment opportunities or corporate partners exploring potential collaborations. Future research could explore alternative proxies to capture retail investor attention more accurately.

Third, this study focuses on listed firms in China, which have unique institutional and regulatory environments. This limits the generalizability of our findings to other countries with different institutional backgrounds. Future studies could benefit from examining this relationship using cross-country data to better understand the impact of retail investor attention on ESG greenwashing across diverse contexts.

Fourth, although our study uncovered some potential underlying mechanisms through which retail investors influence corporate ESG greenwashing, other mechanisms may exist. Future studies could explore additional pathways and factors that might contribute to this relationship, thereby providing a more comprehensive understanding of these mechanisms.

CRediT authorship contribution statement

Weiping Li: Writing – review & editing, Validation, Supervision, Resources, Methodology, Funding acquisition, Data curation, Conceptualization. Zhuowei Mao: Writing – original draft, Formal analysis, Data curation, Conceptualization. Xiaohang Ren: Writing – review & editing, Methodology, Conceptualization. Jing Liang: Writing – review & editing, Writing – original draft, Investigation, Conceptualization.

Appendix A. Variables definition

Variable	Definition
GW	Greenwashing measure, calculated by the difference between standardized ESG disclosure and ESG performance scores. We adopt the maximum difference normalization to standardize the ESG score by each year. The disclosure score is acquired from the Bloomberg ESG database and the performance score is acquired from the Sino-Securities ESG Index (Huazheng ESG). ${GW}_{it} = \frac{{ESG}_{dis i, t} - {minESG}_{dis i, t}}{{maxESG}_{dis i, t} - {minESG}_{dis i, t}} - \frac{{ESG}_{per i, t} - min {ESG}_{per i, t}}{max {ESG}_{per i, t} - min {ESG}_{per i, t}}$
GWZEE	Greenwashing, whose calculation procedure is similar to GW. We adopt the standard deviation model to standardize the environmental score each year. ${GW}_{it} = \frac{{ESG}_{dis, it} - \bar{{ESG}_{dis, it}}}{σ_{{ESG}_{dis}}} - \frac{{ESG}_{per, it} - \bar{{ESG}_{per, it}}}{σ_{{ESG}_{per}}}$
GW2	Greenwashing, whose calculation procedure is similar to GW. We adopt the maximum difference normalization to standardize the environmental score by each year and each industry.
Wind GW	Greenwashing, whose calculation procedure is similar to GW. We replace the ESG performance score with the Wind ESG score.
CNRDS GW	Greenwashing, whose calculation procedure is similar to GW. We replace the ESG performance score with the CNRDS ESG score.
Attention	Retail investor attention, which equals to the natural logarithm of one plus total Baidu searching times of a firm.
Attention2	Retail investor attention, which equals to the natural logarithm of one plus median Baidu searching times of a firm.
Size	Natural logarithm of total assets.
Lev	The ratio of total liabilities to total assets.
ROA	Return on assets, which is the ratio of net earnings to total assets.
Boardsize	Board size, which is the natural logarithm of the number of board directors.
Analysts	Analyst following, which is the natural logarithm of one plus the number of analysts' coverage.
Institutional	Total shareholding percentage of institutional investors.
Independent	The ratio of independent directors in the director board.
Growth	The sales growth rate of operating revenue from year t-1 to year t.
Big4	A dummy variable that equals one if a firm is audited by one of the international Big Four auditing firms: Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young (EY), or KPMG
Duality	A dummy variable that equals one if a firm's CEO is same as the director/chairman.
ExecShare	The shareholding percentage of managers
Top1	The shareholding percentage of largest shareholder.
Guba	We utilize the natural logarithm of one plus the post number in EastMoney(Guba) to measure retail investor attention.
Guba Comment	We also adopt the comments in posts of EastMoney(GubaComment) as the third proxy.
E-Interact	E-Interact is a dummy variable that equals one if a firm has been questioned by investors in Shanghai or Shenzhen Stock Exchange e-interaction platform, and zero otherwise.
Disclosure	The environmental disclosure score, which is acquired from the Bloomberg ESG database.
Performance	The environmental performance score, which is acquired from the Huazheng ESG database.
KZ	KZ financial constraint index (Kaplan and Zingales, 1997).
Forward-looking	Forward-looking is proxied by the natural logarithm of one plus the forward-looking keywords in the MD&A section.
Managerial Awareness	Managerial ownership is proxied by the shareholding percentage of total managerial ownership. Awareness is proxied by the natural logarithm of environmental-related keywords in the MD&A section in the annual report.

Appendix B. Supplementary data

Download: Download zip file (1001KB)

Supplementary material. Code and data

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View Abstract

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Retail investor attention: Guardian of corporate ESG integrity or catalyst for greenwashing?散户关注：企业 ESG 诚信的守护者还是漂绿的催化剂？