Greenwashing and market value of firms: An empirical study

Abstract

In today's business environment, green or sustainable claims are rising as companies strive to strengthen environmental practices in response to climate change and sustainable development challenges. However, with increasing expectations of sustainable performance, companies encounter mounting financial pressure to adopt more efficient sustainable practices, which may lead some to exploit sustainability efforts for their own gain. Many companies make environmentally friendly assertions to conceal or mask their actual activities—a phenomenon known as greenwashing—which fosters public scepticism about the authenticity of their green messaging. This study employs an event study methodology to examine how the stock market values greenwashing news, drawing on 121 global greenwashing news since the 2015 Paris Agreement. Our findings reveal a negative correlation between greenwashing news and stock market reactions. The market reactions to greenwashing news are more negative for firms with greater ESG performance than for weak ESG performance. Additionally, greenwashing news supported by concrete evidence elicits stronger adverse reactions. Companies operating in the manufacturing industry experience more significant market value losses than those in the service sector. The findings also indicate that the Asia-Pacific market demonstrates particularly strong negative responses to greenwashing news compared to other stock markets. This study contributes to the signalling theory and advances the literature on corporate sustainability practices by providing empirical insights in a global context.