We examine whether firms’ deceptive environmental disclosures are systematically related to underlying pollution and capital market outcomes. Using a text-based measure of deceptive environmental language, we document that firms with higher emission intensity exhibit more deceptive environmental disclosure. This association is more pronounced for firms with greater profitability, stronger growth opportunities, and lower financial constraints. We interpret these patterns through a framework in which managers trade off the short-term valuation relevance of favorable environmental narratives against expected reputation and regulatory costs. Consistent with this mechanism, deceptive environmental disclosure is as sociated with short-run increases in stock returns, green fund inflows, and ESG ratings, and these associations attenuate as more accurate environmental information becomes available.
