The Role of Smog in Firm Valuation

This paper examines the influence of smog on firm earnings and information content using the data of Chinese A share listed firms and the air quality monitoring data released by the China National Environmental Monitoring Center from 2013 to 2017. The empirical results show that smog will not only negatively influence the earnings of local firms, but also result in a decrease in the information content of their earnings for market valuations. This paper further tests the role of firm size in the influence mechanism of smog on earnings and information content. The results reveal the significant moderating effect of firm size in the influence mechanism, which is reflected by large-scale firms being more likely to suffer earnings decrease and less likely to suffer earnings information content decrease due to smog, while small-scale firms tend to experience the opposite.