Polluted IPOs

Abstract

Exploiting a unique institutional setting in the approval of initial public offerings (IPOs) in China, our paper shows that fine particulate matter pollution reduces the productivity of high-stakes decision-makers in the financial system. We find that regulators are more likely to approve IPOs on hazy days in Beijing. Our identification relies on the random assignment of IPO review members. Analysis of the review transcripts reveals that regulators ask fewer and less complex questions on hazy days. Green firms are more likely to be approved on hazy days. Firms approved on hazy days have worse stock and accounting performance after listing.

Keywords: Air Pollution, PM2.5, IPO, Regulatory Oversight, Cognitive Ability

JEL Classification: G18, G41, D91, Q5