How does air pollution affect corporate information environment?

Abstract

AbstractIn this article I examine the causal impact of air pollution on the corporate information environment. My empirical findings indicate that firms located in cities with severe air pollution tend to experience higher information asymmetry. The economic mechanisms behind this casual association come from the negative impact of air pollution on corporate governance and managerial human capital. Specifically, the positive causal association between air pollution and corporate information asymmetry is less pronounced for firms with stronger corporate governance and better managerial ability. In addition, firms exposed to more severe air pollution tend to have fewer board meetings. All main empirical findings are robust to a system generalized method of moments estimation, two‐stage least squares tests using thermal inversions as an instrumental variable, regression discontinuity tests based on the Huai River policy, and difference‐in‐difference estimations based on the 2013 Clean Air Action Plan in China. Furthermore, all main findings are confirmed by robustness tests, such as alternative proxies of air pollution and information asymmetry, and the exclusion of first‐tier cities.