Air pollution, human capital and corporate social responsibility performance: evidence from China

ABSTRACT

This study examines the impact of air pollution on a firm’s adherence to the principles of corporate social responsibility (CSR), and the role of human capital in this relationship. Basing our analysis on a sample of listed companies in China between 2014 and 2017, we employ regression discontinuity design (RDD) and the two-stage instrumental variable method (IV-2SLS) in determining that air pollution has a significant, negative impact on CSR performance. This negative relationship is more pronounced in companies that are subject to mandatory CSR disclosure requirements, compared to those required to make only voluntary disclosures. In addition, further analysis demonstrates that executives with an overseas background, or with a working experience of finance, choose to work in cities with superior air quality, enhancing their companies’ CSR credentials. Moreover, the increase in the total labour force in these cities, as a result of better air quality, motivates local companies to improve their CSR performance to retain and attract higher calibre employees. Our study provides original evidence that air pollution generates negative economic externalities, and can alter firm behaviour, through the medium of human capital.

KEYWORDS:

• Air pollution
• corporate social responsibility
• executives
• labour force

JEL CLASSIFICATION:

• Q53
• M14

Acknowledgments

Qu thanks the National Natural Science Foundation of China (grant ID 72003025) and University of International Business and Economics Outstanding Young Scholar Supporting Program (grant ID 20YQ13). Wu thanks the National Natural Science Foundation of China (grant ID 71733004) for financial support.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ This is a measure of the concentration of dust or drift in ambient air with a diameter less than or equal to 2.5 μm.

² On 9 October 2007, ‘the Measures for Selection of Corporate Governance Board of Shanghai Stock Exchange’ was promulgated and listed companies began to apply voluntarily for declaration. Up to 2 November 2007, the Shanghai Stock Exchange and China Securities Index Co., Ltd. received 255 valid applications and publicized them for public comment. One hundred and ninety-nine listed companies were selected as the sample of corporate governance boards by an expert advisory committee. The list of constituent stocks is adjusted periodically and comprises 199 listed companies for the study period.

³ CSR scores released in a year are based on the CSR reports released by firms in the previous year, and the reports record firm CSR activities during the year before the report. When we started the research in 2000, the latest CSR scores available are of 2019 and they reflect the CSR activities that occurred in 2017.

⁴ Since our panel spans only four time periods, which may not be a sufficient duration to capture the time trend of firms’ CSR performance, within-group estimations may miscalculate the deviations and bias our results (Wooldridge 2016).

Additional information

Funding

University of International Business and Economics Outstanding Young Scholar Supporting Program (grant ID 20YQ13)