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The role of greenwashing scandals on investors’ herding behavior

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  • Amin Shakourloo

    (Cyprus International University)

  • Asil Azimli

    (Cyprus International University)

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.

Suggested Citation

  • Amin Shakourloo & Asil Azimli, 2025. "The role of greenwashing scandals on investors’ herding behavior," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 49(3), pages 733-767, September.
    • Handle: RePEc:spr:jecfin:v:49:y:2025:i:3:d:10.1007_s12197-025-09725-x
    DOI: 10.1007/s12197-025-09725-x
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