Greenwashing and financial performance in public health firms: The mechanism of organizational legitimacy erosion

Yaru Liang ¹ Xiang Gao ^2*

• ¹ Tianhua College, Shanghai Normal University, Shanghai, Shanghai, China
• ² Shanghai Business School, Shanghai, China

Amid China's pursuit of its "dual carbon" objectives and the escalating emphasis on Environmental, Social, and Governance (ESG) disclosure, corporate environmental responsibility has emerged as a critical regulatory and market concern. However, mounting institutional and stakeholder pressures have incentivized some firms to engage in greenwashing-strategically overstating or misrepresenting their environmental commitments-to sustain legitimacy and competitive positioning. This study empirically investigates the impact of greenwashing on corporate financial performance, with a particular focus on the mediating mechanism of organizational legitimacy. Leveraging panel data from 157 publicly listed Chinese public health firms (2020-2022), the findings demonstrate that greenwashing significantly erodes organizational legitimacy, triggering negative financial repercussions. By elucidating the indirect pathways through which greenwashing influences firm performance, this research advances theoretical discourse on corporate environmental accountability and legitimacy-based performance dynamics. Furthermore, the study offers actionable insights for public health enterprises, emphasizing the necessity of transparent and verifiable environmental communication to mitigate reputational risks and ensure sustainable financial outcomes. Additionally, it provides empirical evidence to inform policymakers in refining regulatory frameworks that enhance transparency in environmental reporting and foster substantive sustainability practices.