Polluted IPOs

Chinese companies must undergo a review by a regulator-appointed committee before proceeding with initial public offerings (IPOs). We find that firms—particularly, politically unconnected ones—are more likely to pass this review on polluted days (i.e., with a high level of PM2.5). The effect appears driven by reduced cognitive capacity among reviewers, reflected in fewer and simpler questions raised during review sessions. Notably, firms approved on polluted days show no significant performance difference from other firms within three years after the IPO. The findings suggest that pollution-induced cognitive fatigue may paradoxically reduce distortions in a politically influenced approval process. (JEL D22, G24, G32, K22, P28, P31, Q52)