The Dark Side of Co-Opted Board: Evidence from Corporate Greenwashing in US Firms

Past studies show that corporate controversies lead to a decrease in public trust. We explore the interlink between board co-option, ESG controversies and corporate greenwashing. Using an unbalanced sample of 5,585 observations (570 US firms for 10 years), we provide empirical evidence that firms with co-opted directors engage in greater greenwashing practices, validating the ‘dark side’ hypothesis of co-opted boards. Our results remain consistent with robust proxies and after endogeneity corrections using instrumental variable and entropy balancing approach. We provide further evidence that the impact of board co-option on greenwashing is higher for profitable firms and firms with ESG controversies. On the contrary, firms’ good governance reduces greenwashing. Our findings provide policy implications by indicating the importance of a strong governance framework to mitigate adverse consequences of co-opted boards practices.