Financial and sustainability reporting behavior: the association of greenwashing with unethical financial reporting behavior

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2020-07-10

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en

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Abstract

Companies are increasingly urged to disclose their Corporate Social Responsibility (CSR) actions. However, differences exist in the ‘walk’ and ‘talk’ of companies regarding these actions, and stakeholders are not able to distinguish ‘greenwashing’ companies of those that are genuinely good CSR performers. Greenwashing requires the willingness to deceive stakeholders, similar to certain unethical financial reporting activities. Using an unbalanced panel data set, this thesis investigates the association between greenwashing of CSR actions and unethical financial reporting behavior (FRB). Tax avoidance and earnings management are used as representatives for unethical FRB. Using data from Eikon, Worldbank, and ESG Database on 3,943 listed firms worldwide, results show there is a significant positive association between greenwashing of CSR actions and tax avoidance, and that this effect is even stronger for financial firms. Furthermore, for financial firms, there is a positive association between greenwashing and earnings management, while this association is negative for non-financial firms. The results indicate that, for financial firms, the likelihood of engaging in greenwashing significantly increases if a given firm engages in unethical FRB, and vice versa.

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Faculteit der Managementwetenschappen

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