Despite growing concerns over corporate greenwashing, the role of geographic diversification remains insufficiently explored. The purpose of this study is to investigate how cross-border diversification affects greenwashing practices among multinational companies. Specifically, this study examines the linear relationship and finds that geographic diversification significantly increases greenwashing practices.
The analysis is based on a panel data set of 250 S&P500 companies over the period 2015–2022. Greenwashing is measured using discrepancies between environmental disclosure and actual performance, while cross-border diversification is assessed based on the geographic spread of operations.
The results of this study reveal that geographic diversification significantly increases greenwashing practices. However, when testing for nonlinearity, the results reveal an inverted U-shaped relationship: greenwashing increases at moderate levels of geographic diversification but declines once diversification exceeds a critical threshold. This nonlinear result helps reconcile competing theoretical perspectives by highlighting a trade-off between the exploitation of environmental complexity and enhanced accountability mechanisms. Additional analyses indicate that the inflection point occurs at lower levels of diversification for firms operating in highly polluting industries and varies according to state-level pollution intensity and host-country institutional quality.
This study contributes to the literature by uncovering the nuanced impact of cross-border diversification on corporate environmental behavior. This study highlights the double-edged nature of globalization for sustainability reporting and offers insights for regulators and investors aiming to curb greenwashing in multinational firms.
