Adjusted air pollution exposure and corporate innovation investment: Evidence from China

Liu, Jie, Chi, Jing, Kabir, M. Humayun and Hafeez, Bilal ORCID: https://orcid.org/0000-0003-3628-0860 2025. Adjusted air pollution exposure and corporate innovation investment: Evidence from China. International Review of Finance 25 (2) , e70027. 10.1111/irfi.70027

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Abstract

Using a novel measure of air pollution exposure adjusted for the heterogeneity of exposures and the extent of local air pollution, we find a significant negative relationship between adjusted air pollution exposure and corporate innovation investment. This finding still holds after controlling for endogeneity and conducting a series of robustness tests. While the relationship is mediated through net operating cash flows and debt financing costs, we also find that firms with high adjusted air pollution exposure might have deteriorated productivity of R&D personnel, which ultimately hinders innovation input and output. However, state ownership appears to mitigate this adverse effect of adjusted air pollution exposure. Furthermore, the adverse effects of air pollution exposure on innovation investment are more pronounced among firms that disclose environmental information, exhibit low managerial risk tolerance, operate in non‐polluting industries, or are located in developed and less polluted regions. Additionally, the negative impact is particularly evident in the subsample of firms after the signing of the 2015 Paris Agreement. This study sheds light on the importance of adjusted air pollution exposure and its influence on corporate investment in China.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Schools > Business (Including Economics)
Additional Information:	License information from Publisher: LICENSE 1: URL: http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher:	Wiley
ISSN:	1369-412X
Date of First Compliant Deposit:	25 June 2025
Date of Acceptance:	6 June 2025
Last Modified:	25 Jun 2025 10:45
URI:	https://orca.cardiff.ac.uk/id/eprint/179318

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