Does air pollution affect the accrual anomaly in the Chinese capital market? From the perspective of investment adjustment strategy

Abstract

Air pollution poses a threat to human health and economic development and has attracted worldwide attention. China also faces the problem of excessive air pollutant emissions. We use Chinese A-share listed companies from 2007 to 2020 as samples and explore the impact of air pollution on the accrual anomaly. We find that air pollution alleviates the accrual anomaly caused by the investment growth hypothesis but has no significant effect on that caused by the earnings persistence hypothesis. Furthermore, we explore how air pollution mitigates the anomaly from the perspective of investment strategy adjustments. We find that enterprises reduce the overall growth in investments through a strategy of reducing growth in innovation investments and increasing growth in financial investments without a significant impact on the growth in environmental investments. This finding indicates that air pollution can alleviate the anomaly by sacrificing innovative activities. The key to improving efficiency is to improve system construction, which should not be at the expense of the ecological environment.