Pollution or innovation? How enterprises react to air pollution under perfect information.

From 2013 to 2015, China launched a nationwide real-time air quality monitoring and disclosure program in three waves. Since then, the air quality of prefecture-level cities nationwide has been monitored and released publicly in real-time. Using this information program as a natural experiment, we investigate how the response of enterprises' innovation to air pollution changes before versus after this information program. Based on a sample of Chinese listed companies in 289 prefecture-level cities from 2011 to 2016, the results show that the information program encourages enterprise innovation to react to air pollution. However, different types of enterprises have heterogeneity in response to this program. In the mechanism analysis, this paper finds that the information program stimulates enterprises' innovation through improving local governments' environmental protection motivation and promoting public environmental engagement. Our research highlights the critical role of information in the theory and practice of environmental regulation that has long been ignored.