The role of greenwashing scandals on investors’ herding behavior

Amin Shakourloo () and Asil Azimli
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Amin Shakourloo: Cyprus International University
Asil Azimli: Cyprus International University

Journal of Economics and Finance, 2025, vol. 49, issue 3, No 4, 733-767

Abstract: Abstract This study investigates the impact of ten major greenwashing scandals between 2000 and 2023 on investor herding behavior. By the combination of Bayesian game theory with econometric models within an event study framework, we distinguished between "productivity booms," characterized by enhanced transparency and accurate information, and "sentiment booms," where manipulated sentiment leads to capital misallocation. Research findings indicates greenwashing scandals intensify investor herding under high volatility and low transparency. Considerably, a notable decrease in stock returns and an increase in trading volumes were observed following these scandals. The findings emphasize the need for sector-specific ESG enforcement, investor education on greenwashing risks, and real-time sustainability data mechanisms to strengthen informed decision-making and safeguard market stability.

Keywords: Greenwashing scandals; Information asymmetry; Herding behavior; Market dynamics (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s12197-025-09725-x

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