Does Air Pollution Affect Corporate Debt Cost? Evidence from China

32 Pages Posted: 21 Jun 2022

See all articles by Weiping Li

Weiping Li

Sun Yat-sen University

Zixin Liang

affiliation not provided to SSRN

Jiayi Hong

affiliation not provided to SSRN

Xiaoqi Chen

Xiamen University - Institute for Financial and Accounting Studies

Abstract

This study examines whether poor air quality affects corporate debt cost. By employing a regression discontinuity design (RDD) based on the discontinuity of air pollution caused by the Qinling-Huaihe line in China, we found that poor air quality significantly raises the debt cost of firms after. This positive effect is driven primarily by worker productivity and managerial sentiment. Furthermore, this effect is more significant for firms in low-competitive and heavily polluting industries, and those with poor external governance. Our results are robust to alternative measures and various model specifications. In summary, this study provides novel insights into the effects of poor air quality on increasing firms’ debt costs.

Keywords: Air pollution, debt cost, Human Capital, managerial sentiment, regression discontinuity design

Suggested Citation

Li, Weiping and Liang, Zixin and Hong, Jiayi and Chen, Xiaoqi, Does Air Pollution Affect Corporate Debt Cost? Evidence from China. Available at SSRN: https://ssrn.com/abstract=4141939 or http://dx.doi.org/10.2139/ssrn.4141939

Weiping Li

Sun Yat-sen University ( email )

Haizhu District
Guangzhou
China

Zixin Liang

affiliation not provided to SSRN ( email )

No Address Available

Jiayi Hong

affiliation not provided to SSRN ( email )

No Address Available

Xiaoqi Chen (Contact Author)

Xiamen University - Institute for Financial and Accounting Studies ( email )

Xiamen, Fujian 361005
China

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