How Environmental Centralization Curb Corporate Greenwashing Behavior: Evidence From China

ABSTRACT Environmental regulatory institutions play a fundamental role in constraining corporate environmental behavior. However, existing literature offers limited insights into how environmental centralization influences corporate ethical decisions. Using a sample of Chinese listed firms from 2014 to 2023, this study leverages the environmental vertical management reform (EVMR) as a quasi‐natural experiment to examine the relationship between environmental centralization and corporate greenwashing. We find that EVMR significantly reduces firms' greenwashing behavior. This effect is more pronounced in regions with low environmental regulatory stringency, among SOEs, and for firms facing lower financing constraints. Mechanism analyses suggest that EVMR reduces greenwashing by enhancing environmental enforcement and firms' environmental protection investments. Our findings underscore the critical role of effective environmental regulatory institutions in deterring opportunistic greenwashing behavior and offer important policy implications for curbing unethical corporate decisions.