Pollution information and intercity investment flows: Evidence from China's air quality monitoring program

This paper documents how pollution information disclosure shapes firms' intercity investment flows, which are reflected in establishing new subsidiaries in other cities. Exploiting China's staggered implementation of a national air quality monitoring program, which provides more comprehensive and credible pollution information, we find that air pollution leads polluting firms to engage in more intercity investment after the monitoring program implementation compared to before the program. The monitoring program heightens both local officials' and the public's responsiveness to pollution information, imposing greater operational costs and efficiency losses on firms operating in polluted areas, which serves as the primary mechanism driving our findings. Additionally, we provide evidence on the destination patterns of polluting firms' investments, which has important implications for understanding the distributional consequences of environmental regulations.