Air pollution and managers’ forecasting ability

This study examines the relation between U.S. managers’ short-term exposure to air pollution and their forecasting ability. We focus on air pollution due to PM2.5, a fine particulate matter that can easily penetrate an indoor, climate-controlled environment. We show that the short-term ambient PM2.5 level at the firm’s headquarters before a management earnings forecast issuance is negatively associated with the accuracy of the forecast. Also, the short-term ambient PM2.5 level before an earnings announcement is negatively related to the likelihood of a concurrent management forecast issuance. These relations occur at PM2.5 levels below the U.S. air quality standard. A battery of additional tests validate these findings. These results suggest that a transitory exposure to PM2.5 at levels common in the United States temporarily decreases managers’ forecasting ability. The temporary cognitive impairment from short-term exposure to modest levels of PM2.5, as documented in epidemiological studies, is presumably the reason.