We examine investor perceptions on anti-greenwashing legislation. Drawing on legitimacy and resource dependence theory, we develop a conceptual framework that predicts both the direction of investor reactions to anti-greenwashing regulation and the boundary conditions shaping these effects. We test our predictions using abnormal stock returns around the announcement of the European Union’s landmark Green Claims Directive (2023–2024), which aimed to curtail greenwashing, for a sample of 1,524 EU-listed firms. While average stock price reactions to the announcement are insignificant, cross-sectional analyses reveal substantial
heterogeneity. Specifically, consistent with legitimacy theory and inconsistent with resource dependence theory, firms with larger environmental legitimacy deficits and higher environmental legitimacy materiality experience more favorable investor responses. Although the EU announced plans to withdraw the Directive in 2025, investor reactions to this policy reversal suggest that the legitimacy benefits of anti-greenwashing regulation are not undone by repeal. Overall, our findings indicate that anti-greenwashing reforms can transform symbolic legitimacy into “sticky” substantive legitimacy, creating tangible value for firms for which
environmental legitimacy is strategically most consequential.
