Can non-punitive regulation curb corporate greenwashing?Evidence from a word embedding model

This study examines the impact of non-punitive regulations on corporate greenwashing. We employ a word embedding model to quantify greenwashing levels in Chinese A-share listed companies from 2015 to 2021. Using comment letters issued by stock exchanges as a proxy for non-punitive intervention, our finding reveals their effectiveness in deterring greenwashing behavior. The results remain robust after a battery of sensitivity tests. We posit three potential mechanisms underlying this effect: enhanced information transparency, increased media scrutiny, and mitigated agency problems within firms. The impact of comment letters is particularly pronounced in firms with a higher propensity for greenwashing, including private and smaller companies, those with limited analyst coverage, firms operating in polluting or highly competitive industries, and regions with lower environmental transparency or market development. Overall, this study contributes to the understanding of non-punitive regulation's role in shaping corporate environmental practices and provides valuable insights for mitigating greenwashing. • We use comment letters to indicate non-punitive regulation. • A word embedding model is utilized to measure corporate greenwashing practices. • Non-punitive regulatory measures are effective in reducing greenwashing. • Our results are robust. • Channels include improved information transparency, heightened media oversight, and reduced agency conflicts.