Profits Lost in the Haze: Evidence From Wildfire Smoke

ABSTRACT Whereas prior studies primarily examine how environmental shocks affect manufacturing, distribution, and supply chains, we examine a distinct and understudied channel: the effect of wildfire smoke on human capital operating from firm headquarters. Using satellite‐based smoke plume measures, we show that wildfire smoke exposure in a firm's headquarters county is associated with lower operating income, with effects strengthening as smoke becomes more frequent and severe. Exposure is associated with increased employee health concerns, higher employee turnover, and shorter tenure. The negative association is stronger for firms that rely more heavily on skilled employees, and it is concentrated in higher operating costs. Collectively, these findings are consistent with wildfire smoke impairing workforce stability and productivity. Our study points to the need for enhanced climate‐risk and human‐capital disclosures. It also informs HR managers' planning for absenteeism and employee well‐being, and helps investors, audit committees, and auditors better assess smoke‐related operating risks.