A paper titled “Smokestacks and the Swamp” by Xiao Zhao, Assistant Professor of Finance at Shanghai Advanced Institute of Finance (SAIF), together with Emilio Bisetti, Stefan Lewellen, and Arkodipta Sarkar, has been published online in The Review of Financial Studies (RFS), a premier international journal in finance.
The study examines whether politicians affect local firms’ industrial pollution, and whether such effects are transmitted through plant-level networks to affect pollution in other regions. The study first documents that close Democrat wins in U.S. congressional races are associated with lower emissions and higher abatement at the plant level, especially when politicians have strong pro-environmental preferences. The study also finds evidence of reallocation: firms shift emissions away from areas represented by Democrats. However, reallocation is imperfect: firm-level costs are higher and market-to-book ratios lower if firms’ representation is more Democratic. Lower pollution-related illnesses around plants in Democratic districts suggest pass-through effects on local communities.
This research offers a new perspective on the interplay between politics, environment, health, and the economy; it also provides important insights for improving environmental governance worldwide.
About Professor Zhao
Dr. Xiao Zhao is an Assistant Professor of Finance at Shanghai Advanced Institute of Finance (SAIF), Shanghai Jiao Tong University.
Professor Zhao’s area of specialization is Empirical Corporate Finance, with an emphasis on global supply chains and sustainable finance.
Professor Zhao teaches a course on Corporate Finance for MBA students.
