How do China's environmental courts shape corporate greenwashing?

Hongyu Pan; Guangrui Luo; Yiyang Shao; Ya-Ting Chang; Hongyu Pan; Guangrui Luo; Yiyang Shao; Ya-Ting Chang

doi:10.3934/QFE.2026023

Quantitative Finance and Economics

2026, Volume 10, Issue 3: 600-623. doi: 10.3934/QFE.2026023

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Research article

How do China's environmental courts shape corporate greenwashing?

1.
School of Economics and Management, Wuhan University, Wuhan 430072, China
2.
Institute of Carbon Neutrality, Peking University, Beijing 100871, China
3.
Department of Money and Banking, Ming Chuan University, Taoyuan 333, Taiwan

Received: 23 February 2026 Revised: 07 July 2026 Accepted: 13 August 2026 Published: 26 August 2026
JEL Codes: K32, G38, Q58

How does environmental regulation affect corporate greenwashing? Existing studies provide mixed and inconclusive evidence on this issue. This paper offers a new perspective by examining how the strengthening of environmental rule of law, specifically through the establishment of environmental courts in China, affects firm greenwashing. We found that environmental courts significantly curb greenwashing, though the effect is short-lived rather than persistent. The reduction in greenwashing is driven mainly by improvements in firms' actual environmental performance rather than by changes in ESG disclosure. The impact is consistent with the view that environmental courts promote substantive environmental improvements through external legal pressure and internal green transformation. Finally, we show that the effect is more pronounced among firms with higher financing constraints, in more polluted regions, and in regions with weaker rule of law. Overall, our findings underscore the importance of judicial institutions in fostering genuine environmental responsibility and improving the effectiveness of environmental governance.
- environmental court,
- greenwashing,
- legal pressure,
- green transformation,
- China
Citation: Hongyu Pan, Guangrui Luo, Yiyang Shao, Ya-Ting Chang. How do China's environmental courts shape corporate greenwashing?[J]. Quantitative Finance and Economics, 2026, 10(3): 600-623. doi: 10.3934/QFE.2026023

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Abstract

How does environmental regulation affect corporate greenwashing? Existing studies provide mixed and inconclusive evidence on this issue. This paper offers a new perspective by examining how the strengthening of environmental rule of law, specifically through the establishment of environmental courts in China, affects firm greenwashing. We found that environmental courts significantly curb greenwashing, though the effect is short-lived rather than persistent. The reduction in greenwashing is driven mainly by improvements in firms' actual environmental performance rather than by changes in ESG disclosure. The impact is consistent with the view that environmental courts promote substantive environmental improvements through external legal pressure and internal green transformation. Finally, we show that the effect is more pronounced among firms with higher financing constraints, in more polluted regions, and in regions with weaker rule of law. Overall, our findings underscore the importance of judicial institutions in fostering genuine environmental responsibility and improving the effectiveness of environmental governance.

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