Abstract
Smog pollution in China has drawn worldwide attention. Using companies’ data from Chinese Securities Markets and Accounting Research database (CSMAR) and air quality monitoring data from China National Environmental Monitoring Centre(CNEMC), we employ the PM2.5 concentration as a proxy for smog pollution and examine the effect of smog pollution on company environmental uncertainty and operating investment in 74 key cities in China. The empirical results show that smog pollution causes an increase in company environmental uncertainty and a decrease in operating investment for Chinese listed companies, with environmental uncertainty as a mediating variable. Smog pollution can positively influence companies’ environmental uncertainty through their employees and high pressure from the public and government. According to the real-options-based investment approach, companies choose to “wait and see” and, correspondingly, reduce operating investment under high environmental uncertainty such as that caused by smog pollution. Additionally, we find that state-owned enterprises are more significantly influenced by smog pollution in terms of environmental uncertainty and operating investment because of their close relationships with the government and their responsibility to set an example among Chinese companies in the fight against smog pollution.
Highlights
Published: 21 October 2021Development at the expense of the environment has occurred in many countries over the past century and has continued in many developing countries in recent years
The results show that the effect of smog on environmental uncertainty and operating investment is more significant for state-owned enterprises (SOEs) than for
We use a bootstrap approach, which is a method of repeated sampling from the samples, to replace the Sobel test and directly examine the product of the coefficients to test the robustness of our results
Summary
Development at the expense of the environment has occurred in many countries over the past century and has continued in many developing countries in recent years. In response to the increasingly serious air pollution, the Chinese government has implemented environmental policies and economic measures to control deterioration and improve air quality [6,7] Such changes in the external environment and political processes increase political uncertainty and put additional pressure on companies [8,9,10,11]. This study examines the effect of smog pollution on the operating capital investment of Chinese companies and the mediation effect of environmental uncertainty in this process, which, to our knowledge, has not been examined yet. We find the negative effect of smog on company operating investment, and that this influence is achieved partly through the increase in environmental uncertainty resulting from smog aggravation This finding that can be extended to other relevant studies on pollution and its economic influence.
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