Market Response to Regulatory Costs Related to Haze

48 Pages Posted: 10 May 2016

See all articles by Chao Kevin Li

Chao Kevin Li

University of New South Wales (UNSW)

Jin-hui Luo

Department of Accounting, School of Management, Xiamen University

Naomi S. Soderstrom

University of Melbourne

Date Written: April 27, 2016

Abstract

One of the consequences of rapid industrialization and urbanization of China has been a significant increase in air pollution, frequently at levels that are hazardous to health. On 2 December, 2013, pollution reached new levels, with the air quality index crossing the threshold from “very unhealthy” into “hazardous”. We take this exogenous event, along with related increases in outrage and governmental attention, as an opportunity to explore cross-sectional market valuation of regulatory costs. Contrary to research indicating government protection of SOEs (e.g., Berkman, Cole and Fu 2010), we find market expectation of larger haze-related regulatory costs for state-owned firms versus non-state-owned firms. We also find higher expected costs for firms that provide corporate social responsibility reports, firms in high polluting industries, and firms located closely to Beijing. These expected regulatory costs appear to have increased over time, reducing the market valuation of these categories of firms over the longer term. The results are consisted with market expectations of increased government scrutiny regarding pollution.

Keywords: regulatory costs, CSR disclosure, State Owned Enterprises, haze

JEL Classification: M140, G120, G140

Suggested Citation

Li, Chao and Luo, Jin-hui and Soderstrom, Naomi S., Market Response to Regulatory Costs Related to Haze (April 27, 2016). Available at SSRN: https://ssrn.com/abstract=2777455 or http://dx.doi.org/10.2139/ssrn.2777455

Chao Li (Contact Author)

University of New South Wales (UNSW) ( email )

high street
High St
sydney, NSW 2052
Australia

Jin-hui Luo

Department of Accounting, School of Management, Xiamen University ( email )

No. 422 Siming South Road
Room 428, No. 2 Jiageng Building
Xiamen, Fujian 361005
China
86 05922185870 (Phone)

Naomi S. Soderstrom

University of Melbourne ( email )

Victoria
Melbourne, 3010
Australia

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