The dark side of retail investors' green activism: evidence from corporate greenwashing

Abstract

Purpose Information technology, which allows retail investors to voice their demands through online platforms, has become a new way to protect the rights of minority shareholders in China. However, it remains unclear whether pressure from retail investors motivates companies to pursue environmental, social, and governance (ESG) change or to engage in greenwashing. Design/methodology/approach Using data from Chinese listed companies between 2010 and 2022, we analyze how retail investors' green activism impacts corporate greenwashing through environment-related questions posed by retail investors on the “E-Interactive” and “Interactive Easy” platforms. Findings We find that retail investors' green activism is associated with more corporate greenwashing. Specifically, as retail investors' environment-related questions increase, management is more likely to disclose unusually positive ESG reports. Moreover, retail investors' green activism amplifies corporate reputational pressure and managerial myopia, prompting firms to engage in greenwashing. Additionally, heterogeneity tests reveal that the effect is more pronounced in state-owned enterprises, pollution-heavy industries, companies with less analyst attention, and those with lower institutional investor shareholding. Practical implications Our findings provide practical guidance for regulators, investors and companies. Regulators should strengthen oversight of interactions between investors and companies on interactive platforms to ensure authenticity, transparency and the effectiveness of information exchange. Investors should stay alert to potential managerial opportunism when using these platforms for information. Firms should focus on substantive ESG practices to maintain organizational legitimacy and promote long-term sustainable development. Originality/value This study enriches the literature on retail investor activism by uncovering its unintended role in driving corporate greenwashing. It also contributes to understanding strategic ESG tone management drivers in emerging markets.