Environmental judicial reform and corporate greenwashing: evidence from China’s environmental public interest litigation pilot

Environmental public interest litigation (EPIL) is an innovative judicial system for strengthening judicial protections and safeguarding social and public interests. However, the effect of EPIL on corporate greenwashing remains underexplored. To fill this gap, this study investigates the impact of environmental judicial reform on corporate greenwashing behavior and explores the underlying mechanism. Using data of China’s A-share listed companies between 2012 and 2017, we find that EPIL can effectively restrain corporate greenwashing behavior. This effect is more pronounced among state-owned enterprises, firms with limited media or analyst coverage, and those in highly polluted, competitive industries, firms in cities with stringent legal frameworks, weak environmental regulation and severe environmental pollution. Further, mechanism tests show that EPIL enhances judicial efficiency, strengthens government oversight, and heightens public engagement, and reshapes corporate environmental strategies, through which corporate greenwashing is reduced. This study contributes to the existing literature on the influence of formal institutions on greenwashing by shedding light on the significant role of environmental judicial reform in restraining corporate greenwashing behavior.