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.