Abstract
This paper examines how firms that pollute the air react to political costs induced by air pollution. We use detailed data on accounting, air pollution and meteorological factors to investigate earnings management activities of the firms. We find that the firms engage in income-decreasing earnings management in response to air pollution. A one standard deviation increase in Air Quality Index (19.4) causes an increase in income-decreasing discretionary accruals equal to 1.20% of total assets. We observe that income-decreasing earnings management activities are only induced when air pollution reaches the “lightly polluted” level. We also find evidence that the firms are particularly sensitive to political costs around the release of annual reports. This paper contributes to a more accurate assessment of the undesirable impacts of air pollution, and adds to the existing body of literature on political cost hypothesis as well.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
