Stigma as Moral Insurance: How Stigma Buffers Firms from the Market Consequences of Greenwashing

Abstract Organizational stigma is widely assumed to be a serious liability. However, a small body of research has begun to show that stigma can also lead to positive outcomes. A core assumption of this budding literature is that realizing a benefit from stigma requires firms to take active and strategic measures to turn stigma to their advantage. Shedding new light on this assumption, in the present research we show that stigma has a built‐in insurance‐like quality that buffers firms from the market consequences of their misconduct. Specifically, we demonstrate that when firms are caught greenwashing, organizational stigma protects them from consumer backlash, with no effort required on their part to realize this benefit. Across a longitudinal panel data study tracking 7365 firms in 47 countries over a 15‐year period, plus an experiment, we show that stigmatized firms are subjected to less market discipline for greenwashing. We further demonstrate that the mechanism driving this phenomenon is a certain ‘boys will be boys’ expectation by consumers that stigmatized firms lack integrity and, by consequence, are given greater leeway to greenwash. In so doing, we move beyond prior research focusing on the strategies firms can deploy to leverage stigma to their advantage, highlighting instead the psychological mechanisms that make organizational stigma more than a liability to be overcome in the marketplace, but also an asset.