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Aggregate confusion or inner conflict? An experimental analysis of investors’ reaction to greenwashing

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  • Kleffel, Philipp
  • Muck, Matthias

Abstract

This research conducts a stated choice experiment to analyse how potential greenwashing is perceived by retail investors. Results suggest that on the aggregate, investors might fall for greenwashed assets. Considering the intrinsic motivation for sustainable investing, we find that warm-glow investors are willing to pay a premium for eliminating greenwashing risk while this is not the case for environmentalists. A possible explanation for this phenomenon is that environmentalists are primarily concerned about the resolution of cognitive dissonance between their actions and their intention to protect the environment. The validity of green labels is of secondary importance to resolve cognitive dissonance.

Suggested Citation

  • Kleffel, Philipp & Muck, Matthias, 2023. "Aggregate confusion or inner conflict? An experimental analysis of investors’ reaction to greenwashing," Finance Research Letters, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:finlet:v:53:y:2023:i:c:s1544612322005980
    DOI: 10.1016/j.frl.2022.103421
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    More about this item

    Keywords

    Greenwashing; Sustainable investing; Cognitive dissonance; Stated choice experiment; Sustainability reporting; Investor behaviour;
    All these keywords.

    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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