What drives stock market reactions to greenwashing? An event study of European companies

This study examines stock market reactions in response to 296 greenwashing events involving STOXX Europe 600 companies. The results indicate that companies with the lowest total assets in our sample experience negative cumulative abnormal returns. Financially material cases, which are likely to affect company performance through legal and investor-related consequences, also lead to negative market reactions. Compliance-related allegations trigger the most consistent negative market reactions compared to other types of allegations. We also find evidence of moderating effects, with ESG reputation shaping the extent of market reactions. The findings highlight that market reactions to greenwashing are highly context-dependent, reflecting company size, industry, ESG scores, and the characteristics of the allegation. • Stock market reactions to greenwashing allegations are context-dependent. • Companies with low total assets experience negative cumulative abnormal returns. • Financially material and compliance-related cases lead to negative market reactions. • ESG reputation mitigates negative market reactions in financially material cases.