Can finance and accounting supervision inhibit greenwashing? Evidence from a quasi-natural experiment

Purpose Extant research highlights the need for a comprehensive investigation of corporate greenwashing from the lens of government supervision. In this context, this study strives to adopt a novel perspective of government supervision by introducing the finance and accounting supervision pilot policy and investigating its effects on corporate greenwashing. Design/methodology/approach Utilizing a dataset of 7,395 observations from Chinese publicly listed firms between 2015 and 2023, the study employs a difference-in-differences approach to assess the policy's impact on greenwashing behavior. Findings The results demonstrate that the implementation of the pilot policy significantly reduces greenwashing. This effect is driven by enhanced internal controls and increased analyst scrutiny, which can be recognized as key economic channels in curbing greenwashing. The analysis also highlights the role of economic policy uncertainty, which weakens the policy's impact on greenwashing. Furthermore, the study explores heterogeneity by geographic region and firm life-cycle stage, finding that the policy's mitigating effect is most pronounced in firms located in eastern China and those in their growth phase. Originality/value This study provides valuable insights into how government supervision, particularly finance and accounting supervision, can mitigate corporate greenwashing. This can highlight the utmost importance of enhancing government supervision to foster genuine sustainability accounting.