Greenwash: Corporate Environmental Disclosure Under Threat of Audit

39 Pages Posted: 16 Mar 2011

See all articles by Thomas P. Lyon

Thomas P. Lyon

University of Michigan, Stephen M. Ross School of Business

John W. Maxwell

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Indiana University, Department of Economics; Richard Ivey School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: February 24, 2011

Abstract

We develop an economic model of greenwash, in which a firm strategically discloses environmental information and an activist may audit and penalize the firm for disclosing positive but not negative aspects of its environmental profile. We fully characterize the model's equilibria, and derive a variety of predictions about disclosure behavior. We rationalize conflicting results in the empirical literature, finding a non-monotonic relationship between a firm's expected environmental performance and its environmental disclosures. Greater activist pressure deters greenwash, but induces some firms to disclose less about their environmental performance. Environmental management systems discourage firms with poor expected environmental performance from greenwashing, which may justify public policies encouraging firms to adopt them.

Suggested Citation

Lyon, Thomas P. and Maxwell, John W., Greenwash: Corporate Environmental Disclosure Under Threat of Audit (February 24, 2011). Journal of Economics & Management Strategy, Vol. 20, Issue 1, pp. 3-41, 2011. Available at SSRN: https://ssrn.com/abstract=1782519 or http://dx.doi.org/10.1111/j.1530-9134.2010.00282.x

Thomas P. Lyon (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-615-1639 (Phone)

John W. Maxwell

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Department of Business Economics and Public Policy
Kelley School of Business, Indiana University
Bloomington, IN 47405
United States
812-855 9219 (Phone)
812-855 3354 (Fax)

HOME PAGE: http://johnwmaxwell.com

Indiana University, Department of Economics ( email )

Wiley Hall
Bloomington, IN
United States

Richard Ivey School of Business ( email )

The University of Western Ontario
1151 Richmond Street North
London, Ontario N6A3K7
Canada
5198502439 (Phone)
5198502306 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
3
Abstract Views
1,184
PlumX Metrics