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In this study, we investigate whether the unpleasant mood of managers caused by air pollution leads to poorer decision‐making quality. Using a sample of 9,282 firm‐year observations from 2014 to 2017 in China, we show that (i) the mood of managers becomes more negative as air quality decreases; and (ii) there is a negative relation between air pollution and financial reporting quality. Furthermore, this association is stronger for firms with (i) weaker corporate governance; and (ii) top management teams with a lower average age, fewer females and a lower average educational level. Our results hold through various robustness tests.
Accounting & Finance – Wiley
Published: Dec 20, 2021
Keywords: Air pollution; Financial reporting quality; Mood; RDD
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