Previous research on stakeholder management has argued that firms should align their practices and communications with stakeholder expectations to build legitimacy and trust, and that deceptive practices like greenwashing will elicit negative response from stakeholders. However, we theorize that stakeholders may respond both positively and negatively to greenwashing, with their reactions depending on the type of firm involved. Specifically, examining the effect on security analysts, influential stakeholders affecting investment decisions, we investigate how greenwashing affects analysts’ recommendations, specifically concerning family owned firms (FOFs) and non-family owned firms (NFOFs). We theorize that greenwashing may evoke positive assessments from analysts for firms overall, because it demonstrates a focus on shareholder value creation, but greenwashing reinforces greater skepticism towards FOFs, because FOFs have dual goals of socioemotional (SEW) and financial wealth. Using a novel measure of greenwashing based on the difference between the amount that a firm discusses environmental issues in its financial statements and its environmental performance, we provide robust empirical evidence supporting our predictions.
