Journal Articles

Greenwash: Environmental Disclosure Under Threat of Audit

2011, Journal of Economics & Management Strategy

John W. Maxwell, Thomas P. Lyon

Abstract

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.

Citation

Lyon, Thomas P. and John W. Maxwell (2011), "Greenwash: Environmental Disclosure Under Threat of Audit," Journal of Economics and Management Strategy, Vol. 20, Issue 1, pp. 3-41.

Keywords

Greenwash, Disclosure, Activist Pressure, Communication, Environment

Kelley School of Business

Faculty & Research