Impact of air quality on enterprise productivity: Evidence from Chinese listed companies

Abstract

We provide insights and innovative ideas for China to achieve green development and promote high-quality economic development by studying the impact of air quality on enterprise productivity. This paper uses data from 2008 to 2016 for A-share companies listed on the Shanghai and Shenzhen stock markets, as well as the levels of particulate matter under 2.5 μm in diameter for 214 major Chinese cities. At the same time, this paper innovatively applies regression discontinuity and the Spatial Durbin Model for empirical testing. Considering the endogeneity, we choose the air flow index as an instrumental variable and the generalized space two-stage least squares method for the endogenous test. Additionally, we use dynamic regression and different spatial weight matrix to conduct robustness tests and reselect data from 2008 to 2012 and 2013 to 2016 as samples. Moreover, we test corporate heterogeneity from three perspectives: pollutant type, firm equity, and an industry’s technological level. The results show that the deterioration of local air quality significantly inhibits firm productivity, while the spatial spillover effects of pollution from surrounding cities also have a significant dampening effect on firm productivity. This negative effect is transmitted through research and development innovation capacity, human capital, and government subsidies. This empirical evidence from listed companies can be used for evaluating air quality management to enhance enterprise productivity, as well as to provide policy recommendations for boosting firm productivity through improved air quality.

How air pollution affects corporate total factor productivity?

“…companies for verification and finds that air pollution significantly suppresses total factor productivity of enterprises, with an impact coefficient of -0.038. Compared with existing research [7], the conclusion is consistent. However, when PM2.5 is used to represent air pollution, the impact coefficient will increase, but PM2.5 is only one item in the Air Quality Index (AQI).…”

“…Eqs (2)-( 4) are tests of hypothesis 2 and Eqs (5)-( 7) test hypothesis 3. Stepwise regressions of the two sets of mediating models in Eqs (2)-(4) and Eqs (5)- (7) are conducted respectively, focusing on whether α 1 , θ 2 , γ 3 and γ 1 are significant, and if all are significant and the α 1 ×θ 2 ×γ 3 product has the same sign as γ 1 , hypotheses 2 and 3 hold.…”

“…From the perspective of production cost, Studies have shown that air pollution significantly decreases enterpriselevel energy efficiency by reducing enterprise productivity, increasing total energy consumption, and lowering exports [15]. The negative impact of air pollution extends to inhibiting firm productivity, with the spatial spillover effects of pollution from surrounding cities also dampening firm productivity [7]. Moreover, air pollution has been found to negatively affect labor productivity in the industrial sector, with reductions in PM10 levels leading to increases in marginal labor productivity [16].…”

“…Air pollution also negatively affects entrepreneurial activities, reducing the number of newly registered firms by about 36%, influenced by factors like brain drain, social capital, startup costs, and financial constraints [6]. It inhibits firm productivity directly and through spatial spillover effects, with the deterioration of air quality impacting research and development, human capital, and government subsidies [7]. The siting of enterprises is adversely affected by air pollution, discouraging the establishment of businesses in polluted areas due to reduced local labor endowment and market scale [8].…”

Carbon Emission, Air Pollution, and Total Factor Productivity: Evidence from Prefecture-Level Cities in China

“…Our results are comparable with existing research, although these results may only apply to certain types of industries or different environmental regulatory indicators. W. Li and Zhang (2019) find that the worse the air pollution, the lower the company's productivity. Specifically, for every 1% increase in PM 2.5 , the company's productivity will decrease by 0.692 percentage points.…”