Haze alert: market impact of air pollution in China

Using a December 2013 haze event, when China's air quality index crossed the threshold from ‘very unhealthy’ to ‘hazardous’ for the first time, this study assesses the local market's reaction to expected regulatory costs.

The study found that, in the longer term, expected regulatory costs related to haze affected the stock price of all Chinese companies.

However, in the days immediately after the event, the market expected that companies from high polluting industries, or that provided corporate social responsibility reports, or were state-owned would be shielded from higher regulatory costs, reflecting the Chinese government’s historical position of valuing industrial activities over environmental concerns. As national and international pressure grew, the market valuation of these industries fell.

The same change to market expectation occurred for firms located closer to Beijing, which were also initially expected to be shielded from increased regulatory costs but whose market valuation ultimately fell.

This negative market valuation underscores the existence of material impacts on firms related to environmental events that are not directly caused by them.

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This study has relevance for investors interested in the Chinese stock market.

It also provides evidence that the market imputes expectations about firm-specific regulatory costs stemming from broad environmental events that are beyond the firm’s control.


Chao Kevin Li, Jin-hui Luo and Naomi Soderstrom, 'Market Response to Expected Regulatory Costs Related to Haze’, Journal of Accounting and Public Policy, to be published in 2017


Dr Chao Kevin Li, School of Accounting, University of New South Wales

Dr Jin-hui Luo, Department of Accounting, Xiamen University, China

Chief investigator

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