Greenwashing in Japanese Corporations: Measurement, Determinants, and Financial Reporting Impacts

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Greenwashing is defined as the presentation of misleading positive environmental disclosures. This study examines whether the extent of greenwashing is influenced by corporate governance and assurance using a sample of 429 Japanese companies from 2018-2019 and presents five key findings. Environmental disclosure is positively associated with actual environmental performance. Firms observed with high risk of greenwashing are likely to understate their disclosures, and those firms are likely to use third-party assurance. Assurance is only effectively in mitigating the disclosures-performance asymmetry for non-greenwashing companies. Existing corporate governance is ineffective in curbing greenwashing, indicating a need to develop more effective regulations, standards, and practices.