Purpose Amid the growing global emphasis on sustainable development, some firms strategically engage in greenwashing to manage their stakeholder perceptions. This study examines whether and how investor sentiment, as a salient behavioral bias in capital markets, influences the adoption of symbolic environmental, social, and governance practices. Design/methodology/approach Using data from Chinese A-share listed firms from 2011 to 2022, we construct an investor sentiment index and a greenwashing score to empirically test the proposed relationship. Findings Our results show that: (1) Positive investor sentiment intensifies firms’ engagement in greenwashing. (2) This effect is mediated by heightened managerial myopia and enhanced risk tolerance. (3) This promoting effect is more pronounced in firms with poorer internal governance and weaker external governance. Originality/value Overall, this study reveals a potential adverse consequence of positive investor sentiment, offering a new perspective on firms’ hypocrisy on the issue of sustainable development.
Zhang et al. (Mon,) studied this question.