Politically connected polluters under smog

Wang Yuhua ()
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Wang Yuhua: Political Science, University of Pennsylvania, 208 South 37th Street Stiteler Hall, Room 217, Philadelphia, PA 19143, USA

Business and Politics, 2015, vol. 17, issue 1, 97-123

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.

Date: 2015
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DOI: 10.1515/bap-2014-0033

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