Market response to expected regulatory costs related to haze

Abstract

One of the consequences of rapid industrialization and urbanization of China has been a significant increase in air pollution, frequently at levels that are hazardous to health. On 2 December 2013, pollution reached new levels, with the air quality index crossing the threshold from “very unhealthy” into “hazardous”. We take this exogenous event, along with related increases in outrage and governmental attention, as an opportunity to explore market valuation of expected regulatory costs. Contrary to research indicating government protection of state-owned enterprises (SOEs) (e.g., Berkman et al., 2010), we find evidence supporting market expectations of larger haze-related regulatory costs fo..