Outward Foreign Direct Investment and Greenwashing: A Within-Country Comparative Analysis of Firm Heterogeneity in China

This study examines the relationship between outward foreign direct investment (OFDI) and corporate greenwashing by Chinese multinational firms as a major category of emerging economy firms. While previous research has focused on the economic outcomes of OFDI, this study advances new knowledge about the OFDI effect on environmental practices of Chinese multinational firms, in particular greenwashing. We propose a U-shaped relationship between OFDI and greenwashing, grounded in the interplay between firms’ motivation and capability concerning green practices. Low OFDI boosts capability faster than legitimacy motivation, reducing greenwashing. As OFDI deepens, motivation outpaces capability due to diminishing learning returns, widening the gap and increasing greenwashing. Adopting a within-country comparative lens, we further explore the heterogeneity exhibited by Chinese multinational firms, which depends on varying top management team (TMT) backgrounds, organizational structures, and ownership configurations. By establishing a theoretical and empirical framework of firm heterogeneity within a single major emerging economy, we contribute to understanding firm-level variations that lay the groundwork for future cross-national comparative research with firms from other emerging economies. The findings provide critical insights into the complex relationships between OFDI and environmental decoupling behaviors in the Chinese context, with implications for other emerging economies.