The effect of green warm-glow on investors’ decisions regarding greenwashing firms

Purpose This study aims to examine individual investors’ decisions to invest in firms when they face a trade-off between financial performance and sustainability-related communication, particularly when moral-emotional traits are involved. Drawing on Rational Choice Theory (RCT) and the trade-off judgement perspective, the study examines whether investors prioritise profitability over ethical consistency and whether green warm-glow moderates this preference. Design/methodology/approach The authors conducted a between-subjects experiment involving 93 accounting students acting as surrogate investors. Participants were randomly assigned to one of two scenarios: a profitable greenwasher firm or an underperforming silent green firm. Green warm-glow was measured as an individual-level moderator. Findings The results show that participants reported higher investment decision scores for the profitable greenwasher firm. However, this preference was reversed among participants with high green warm-glow, who reported lower investment decision scores for the profitable greenwasher firm and higher scores for the underperforming silent green firm. These results indicate that moral-emotional traits influence how investors weigh ethical and financial considerations. Research limitations/implications The study relies on student proxies for investors and simulates individual-level investment decisions, which may limit external validity. Future research could extend the experiment to professional or institutional investors. The findings offer theoretical insight into the ethical dimension of investment decision-making and the boundary conditions shaping perceptions of greenwashing. Practical implications The results underscore the importance of strengthening business ethics education, particularly in accounting programmes, to foster critical awareness of greenwashing and sustainability communication. For practice, firms should align their ESG communication with credible performance indicators to maintain investor trust. Originality/value This study contributes to the behavioural accounting and sustainability reporting literature by integrating ethical orientation (green warm-glow) into the analysis of how investors weigh financial and non-financial cues when confronted with greenwashing.