Does regional air quality affect executive turnover at listed companies in China?

Abstract

This paper studies whether regional air quality affects executive turnover in China. Executives can change locations when they are concerned about the health risks from prolonged exposure to poor air quality as tenure extends. Poor air quality can lead to poor company performance, which can also lead to forced executive turnover. Using air quality data of prefecture-level cities and executive data of listed companies from 2004 to 2014, we find that poor regional air quality significantly increases executive turnover. The impact is more pronounced when executive tenure is longer but not when company performance is poorer, suggesting that executives’ concern about air quality is the channel of the impact. High executive compensation does not mitigate the impact, whereas political incentives at state-owned listed companies do. Our results indicate the role of regional air quality in ensuring the stability of company executives and improving the regional competitiveness for the labor force in China.