Is Liability of Foreignness Always Bad for Firms? A Study of the Influence of Top Management Team Foreignness on Corporate Greenwashing

Abstract

This study investigates the impact of top management team (TMT) foreignness on corporate greenwashing. Drawing on social identity theory, we argue that foreign TMT members, suffering more from individual liability of foreignness (LOF), adopt a more cautious approach to uncertain environmental disclosures and are more concerned with preventing corporate misbehaviors. These lead foreign TMT members to communicate companies' environmental initiatives in a more honest manner, thereby effectively reducing corporate greenwashing. We further propose that the negative relation between TMT foreignness and greenwashing will be strengthened when a firm faces higher earnings pressure and operates in a less marketized environment, as these conditions exacerbate individual LOF on foreign TMT members. Empirical analysis of a sample of Chinese listed companies from 2010 to 2022 confirms our arguments, suggesting that hiring foreign executives can be an effective strategy for mitigating greenwashing, particularly in contexts where individual LOF is more pronounced.