Greenhushing and Reputational Threat: Theory and Evidence

ABSTRACT Motivated by the importance of credible sustainability disclosure and concerns about reputational risk, this study investigates greenhushing—the deliberate under‐communication of strong corporate sustainability performance. As stakeholders increasingly demand transparent and reliable ESG disclosures, firms face a strategic dilemma: how to communicate progress without triggering skepticism, regulatory scrutiny, or accusations of greenwashing. We develop a theoretical framework that extends voluntary disclosure theory by incorporating uncertainty about the outcomes of external scrutiny, explaining why highly active firms may greenhush. Using a panel dataset of 17,012 firm‐year observations from 2003 to 2022, we analyze the relationship between internal and external sustainability actions and find an inverted U‐shaped pattern. Companies initially increase sustainability disclosure as internal efforts rise, but those with the most intensive sustainability activities reduce reporting—consistent with greenhushing. Moreover, high‐reputation firms face heightened scrutiny, leading to greater perceived risks and lower thresholds for greenhushing. These insights reveal that regulatory pressure and fear of misinterpretation can distort corporate transparency.