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Politically connected polluters under smog

Published online by Cambridge University Press:  20 January 2017

Yuhua Wang
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Abstract

I conduct an event study of an exogenous pollution shock-smog in the winter of 2013 to examine how the market values of firms in polluting industries and environmental protecting industries, respectively, responded in “the world's worst polluter”: China. I first show that politically connected polluters, defined by having at least one board member who was a former local bureaucrat, are more likely to be state owned and in debt. During the 21 days of the smog, polluters experienced a cumulative abnormal return of −5.38%, while protectors had a cumulative abnormal return of 3.50%. However, politically connected polluters were less susceptible to the shock: they experienced a 1% greater positive abnormal return than unconnected polluters. Connected protectors also benefited from a greater 1% abnormal return than unconnected protectors. The findings imply that environmental disasters have distributional effects, and support a theory that links rent-seeking behavior to pollution.

Type
Research articles
Information
Business and Politics , Volume 17 , Issue 1 , April 2015 , pp. 97 - 123
Copyright
Copyright © V.K. Aggarwal 2015 and published under exclusive license to Cambridge University Press 

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