Is greenwashing relevant information for investors? An event study of corporate greenwashing and stock market reactions

2022

The understandings and frequencies of climate change adversities have increased

dramatically in the last decades. As a result, firms are under pressure from stakeholders to

improve their environmental performance. However, some firms are opting to take shortcuts

in the form of corporate greenwashing. This thesis investigates whether the exposure

of corporate greenwashing leads to abnormal stock returns, and studies relationships

between the abnormal returns and firm characteristics. We also discuss the concept of

greenwashing, specifically its definitions, history, drivers, and future.

Using an event study methodology, we define the events to be the day of publication for

an article in a major news outlet that exposes firms for greenwashing. From a sample of 44

greenwashing firms from 2015-2022, we find that the exposure of greenwashing is associated

with significant negative abnormal returns for some event windows. In particular, the

event window [0,2] shows abnormal returns of -1.376% and is significant at the 1% level.

The evidence shows that investors react negatively to the exposure of greenwashing. We

argue that the reactions might come from the notion that environmental performance is

regarded as valuable, or that investors have a disregard for cheaters. We also apply OLS

regressions on the cumulative abnormal returns (CAR) and firm characteristics, to find

that CAR is significantly related to firm size, industry, and environmental score. The

results for the cross-sectional regressions are subject to model specifications and varies

across event windows.

Keywords Greenwashing,