Events

Prof. Qiang CHENG
Dean and Lee Kong Chian Chair Professor of Accounting
School of Accountancy
Singapore Management University

Exploiting the staggered adoption of a pollution information program in China, which provides the public city-level and real-time air pollution information, we examine the effect of the availability of pollution information on firms’ environmental investments. We find that compared with control firms, affected firms increase their environmental investments after the implementation of the information program. The effect is more pronounced for firms subject to more public scrutiny regarding pollution, stronger pressure from local governments, and less financial constraints. We further document that governments use both “carrots and sticks” – environmental subsidies and penalties – to incentivize firms to improve environmental practices. Furthermore, affected firms increase their disclosures of plans on pollution control and reduce the ambient PM2.5 concentrations. Lastly, we find that affected firms experience a decline in financial performance. These findings indicate that when armed with real-time pollution information, local communities can induce firms to internalize the externalities of air pollution and shape firms’ environmental activities.