This article mainly investigates the direct and indirect effect (through its relation with advertising) of greenwashing on market value of firms with a special emphasis on consumer awareness and technological innovation.
We analyze data comprising 52,861 firm-year observations for 5,280 firms from 47 countries from 2002 to 2022 and use panel regression models having greenwashing, advertising and their interaction as explanatory variables along with control variables. We also run 2SLS estimation to account for potential endogeneity.
Both advertising and greenwashing are positively associated with market value in the short run. In the long run, the impact of greenwashing reveals negative. The combined effect of advertising and greenwashing remains insignificant over both the short and long horizons. However, in industries with high awareness (high technological innovation), greenwashing increases (decreases) the positive impact of advertising. In other words, consumers and other stakeholders tend to penalize (not penalize) greenwashers more in businesses with high technology (awareness) combined with intensive advertising.
Managers, policymakers, business leaders, investors and marketing experts should consider the outcomes of advertising and green communication strategies. In particular, companies in high-tech businesses should be more cautious about implementing greenwashing.
We contribute to the literature at the intersection of marketing (advertising expense and customer awareness), finance (firm value and asset pricing) and sustainability (corporate social responsibility and greenwashing) by offering the first empirical insights into the moderator role of greenwashing on market value.
