The Impact of Misleading Corporate Communication on Stock Performance
29 Pages Posted: 26 Jun 2024
Date Written: June 19, 2024
Abstract
We observe an increase in the number of misleading communication incidents detected among all US-listed companies in the period from 2007 to 2022. Notably, governance washing incidents consistently led to significant negative abnormal returns of corresponding firms, while the negative impact of greenwashing incidents only became apparent after 2015. In contrast, social washing-related incidents lack significance over the sample period. The impact of misleading communication incidents is typically immediate upon disclosure but tends to dissipate within two weeks thereafter. When examining different sectors, we discover diverse responses to various types of misleading communication, highlighting the heterogeneous nature of this phenomenon across industries.
Keywords: Misleading Communication, Environmental Social and Governance (ESG), ESG incidents, Greenwashing, Event Studies
JEL Classification: G14, G40, Q51, Q56
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