Profits Lost in the Haze: Evidence from Wildfire Smoke

Abstract

This paper examines the causal effects of climate change–induced air pollution on U.S. corporate performance. Using wildfire smoke exposure as a novel setting, we find that wildfire smoke at headquarters significantly reduces firms’ operating income. This effect is more pronounced when employees have higher marginal productivity and are more costly to replace. Additional analyses reveal that wildfire smoke disrupts firms’ human capital, as evidenced by increased turnover, shorter employee tenure, and higher operating expenses. However, firms with high awareness and control of environmental pollution are shielded from the adverse effects of wildfire smoke. Overall, our study provides evidence that wildfire smoke, an intensifying climate-related risk, significantly impairs corporate performance.