Pollution Shock and Firm Performance

66 Pages Posted: 26 Jun 2018 Last revised: 18 Feb 2020

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Long Wang

Zoe Yang

The Chinese University of Hong Kong - CUHK Business School

Multiple version iconThere are 2 versions of this paper

Date Written: October 6, 2019

Abstract

This study examines the impact of air pollution shocks on consumer satisfaction and firm performance in the service sector. We show that air pollution shocks lead to an immediate decrease in consumer satisfaction, followed by a substantial rebound in consumer satisfaction for eight months after the haze completely dissipates. We employ sentiment analysis and topic modelling techniques to investigate the underlying mechanisms: the changes in consumers’ mood rather than decreases in service quality account for the decrease of review score during the haze shock, and an improvement in service quality restores consumer satisfaction after the pollution shocks. Our findings provide insights that managers need to effectively adjust their performance and strategies to mitigate the impact of environmental shocks.

Keywords: Air Pollution, Service Quality, Customer Review, Machine Learning

JEL Classification: C8, D2, L2, L8

Suggested Citation

Agarwal, Sumit and Wang, Long and Yang, Yang, Pollution Shock and Firm Performance (October 6, 2019). Available at SSRN: https://ssrn.com/abstract=3189351 or http://dx.doi.org/10.2139/ssrn.3189351

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Yang Yang (Contact Author)

The Chinese University of Hong Kong - CUHK Business School ( email )

7/F, Cheng Yu Tung Building
12 Chak Cheung Street, Hong Kong
Hong Kong
Hong Kong

No contact information is available for Long Wang

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