Environmental innovation and corporate financial performance: the moderating role of greenwashing

Purpose With growing global pressure for businesses to adopt sustainable practices, understanding the interplay between genuine environmental efforts and deceptive greenwashing is critical for fostering both ecological integrity and economic success. This study aims to investigate the intricate relationship between environmental innovation (EI), greenwashing (GW) and corporate financial performance (CFP) in Chinese enterprises. Design/methodology/approach This study analyzes data from Chinese enterprises spanning 2008 to 2022. By employing a meticulously developed measure of EI and GW, alongside a robust methodological framework, the research establishes a strong and conclusive connection between EI and CFP policy. Findings This study finds that EI reduces financing constraints, which in turn enhances CFP. However, it also explores the moderating role of GW in this relationship, revealing that significant GW practices can substantially diminish the positive impact of EI on CFP. This indicates that while EI can improve CFP by optimizing resources and enhancing corporate credibility, the authenticity of these environmental efforts is vital. GW can erode stakeholder trust and negate the benefits of EI. Additionally, the research examines how factors such as the financial ecosystem (e.g. bank concentration and Fintech development) and ownership structure (state-owned enterprises versus non-state-owned enterprises) moderate the EI–CFP relationship. The findings are consistent across various tests including instrumental variable analysis and propensity score matching (PSM). Research limitations/implications This study contributes to the literature by highlighting the critical role of GW in moderating the EI–CFP relationship and provides a nuanced understanding of the factors that influence the effectiveness of EI in enhancing CFP. It stresses the need for genuine, transparent sustainability practices to maintain stakeholder trust and ensure the financial viability of environmental initiatives. Originality/value This research highlights how insincere environmental claims can undermine both ecological and financial gains, offering novel insights for firms and policymakers aiming to align economic competitiveness with sustainability goals.