Peer Pressure in Green Innovation: Green Innovation or Greenwashing?

This study examines whether a firm engages in green innovation or greenwashing in response to pressure from its business rivals' engagement in green innovation. Using a sample of 2958 firm‐year observations from 720 US publicly listed firms from 2010 to 2023, we find that a gap in green innovation between a focal firm and its top business rivals is significantly and positively associated with the focal firm's greater greenwashing but not green innovation. This effect is more pronounced when the firm is financially constrained, operates in a non‐carbon‐intensive industry, or faces stronger product market competition. These findings provide new insights for investors, policymakers, and scholars into the externalities, showing that rival firms' positive environmental initiatives may generate negative spillovers when focal firms respond opportunistically.