Contaminated Heart: Does Air Pollution Harm Business Ethics? Evidence from Earnings Manipulation

We investigate whether air pollution harms business ethics from the perspective of earnings manipulation, which exerts a real effect on economy and social welfare. Using large sample comprehensive quality index in China, we find that firms located cities with more severe exhibit higher levels discretionary accruals are likely to restate their financial statements, consistent exposure leading manipulation. further provide causal evidence using propensity score matching discontinuity regression design (RDD) exploiting Qinling Mountain–Huai River Heating Policy Line, exogenously leads immediately north Line but not those south. Our findings robust controlling for weather conditions alternative samples measures Overall, this study unveils how ecological environment shapes ethics.