The impact of air pollution on financial reporting quality: Evidence from China

• Main Authors: HU, Nan, XUE, Xingnan, LIU, Ling
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: Air pollution; Financial reporting quality; Mood; RDD; Computer Sciences; Environmental Sciences; Finance and Financial Management; Organizational Behavior and Theory
• Online Access: https://ink.library.smu.edu.sg/sis_research/8034
• Institution: Singapore Management University

In this study, we investigate whether the unpleasant mood of managers caused by air pollution leads to poorer decision-making quality. Using a sample of 9,282 firm-year observations from 2014 to 2017 in China, we show that (i) the mood of managers becomes more negative as air quality decreases; and (ii) there is a negative relation between air pollution and financial reporting quality. Furthermore, this association is stronger for firms with (i) weaker corporate governance; and (ii) top management teams with a lower average age, fewer females and a lower average educational level. Our results hold through various robustness tests.