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Contaminated Heart: Does Air Pollution Harm Business Ethics? Evidence from Earnings Manipulation

Cho, C. H., Huang, Z. ORCID: 0000-0003-2280-3149, Liu, S. and Yang, D. (2021). Contaminated Heart: Does Air Pollution Harm Business Ethics? Evidence from Earnings Manipulation. Journal of Business Ethics, doi: 10.1007/s10551-021-04762-y

Abstract

We investigate whether air pollution harms business ethics from the perspective of earnings manipulation, which exerts a real effect on the economy and social welfare. Using a large sample and a comprehensive air quality index in China, we find that firms located in cities with more severe air pollution exhibit higher levels of discretionary accruals and are more likely to restate their financial statements, consistent with exposure to air pollution leading to more earnings manipulation. We further provide causal evidence using propensity score matching and a discontinuity regression design (RDD) exploiting the Qinling Mountain–Huai River Heating Policy Line, which exogenously leads to more air pollution to cities located immediately north of the Line but not those in the south. Our findings are robust to controlling for weather conditions and alternative samples and measures of air pollution and earnings manipulation. Overall, this study unveils how the ecological environment shapes business ethics.

Publication Type: Article
Additional Information: This is a post-peer-review, pre-copyedit version of an article published in Journal of Business Ethics. The final authenticated version is available online at: http://dx.doi.org/10.1007/s10551-021-04762-y
Publisher Keywords: Air pollution; Business ethics; Earnings manipulation
Subjects: B Philosophy. Psychology. Religion > BJ Ethics
H Social Sciences > HG Finance
Departments: Business School > Finance
Date Deposited: 25 Feb 2021 10:00
URI: https://openaccess.city.ac.uk/id/eprint/25715
[img] Text - Accepted Version
This document is not freely accessible until 23 February 2022 due to copyright restrictions.

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