Green Signals, Red Flags: The Impact of Greenwashing Allegations and Crisis Communication on Corporate Perceptions

ABSTRACT Greenwashing allegations threaten the legitimacy of ESG investments and can shape public perceptions. Drawing on signaling theory and crisis communication, we examine how the source and type of greenwashing allegations as well as a firm's crisis response strategy affect corporate image and investor behavior. The study focuses on three core factors: the source of the allegation, the type of greenwashing, and the crisis response strategy. It employs a dual‐experimental design. Study 1 manipulates the type (cheap talk vs. fraud) and source (whistleblower vs. watchdog) of greenwashing allegations, while Study 2 examines the effects of corporate response strategies (proactive vs. defensive strategy vs. no response) to the most detrimental scenario from Study 1. The findings show that both fraud allegations and whistleblower sources each eroded corporate image, with their effects being largely additive. Investment behavior was shaped by the interaction between allegation type and source: the combination of whistleblower and fraud allegations produced the strongest negative impact. A proactive response to these greenwashing allegations was more effective at preserving corporate image than a defensive, and any response proved better than remaining silent. However, the type of crisis response did not significantly influence immediate investment allocations. Overall, the findings underscore the high diagnosticity of insider fraud signals and the effectiveness of accountability‐focused responses for image repair, while suggesting that investment behavior is less susceptible to immediate messaging in times of crisis.