Exposure to water risk and firm valuation: evidence from geographic proximity to cancer villages

Unofficial AI-generated summary based on the public title and abstract. Not an official translation.

🔬研究者:Provides empirical evidence on how localized environmental risks are priced, offering a new dimension for ESG and climate risk research.

🏢実務担当者:Highlights the importance of geospatial due diligence in ESG assessments and site selection to avoid regulatory and reputational risks.

🏛政策担当者:Quantifies the economic impact of pollution on firm value, supporting stricter environmental enforcement and regional stability.

This study aims to investigate the impact of geographic proximity to “cancer villages” – communities with abnormally high cancer rates linked to industrial pollution – on firm valuation. It theorizes that such proximity represents an “amplified” form of water risk, distinct from general climate concerns. The research aims to determine whether the physical, regulatory and reputational contagion stemming from these localized public health crises results in a tangible valuation discount for nearby firms. Using a sample of listed Chinese companies from 2004 to 2022, the study measures water risk using a continuous variable: the negative natural logarithm of the distance between a firm's headquarters and the nearest media-reported cancer village. The empirical strategy employs regression models with year, industry and province fixed effects to control for heterogeneity. Cross-sectional tests on industry sensitivity and firm size are used to validate specific transmission mechanisms, while wastewater discharge analysis is used to mitigate endogeneity concerns. Proximity to cancer villages is significantly associated with lower firm valuation. Economically, a one-standard-deviation increase in proximity reduces Tobin's Q by approximately 1.7%. The study identifies specific channels driving this discount: proximate firms face increased environmental compliance spending and intensified “campaign-style” regulatory scrutiny. The valuation penalty is most pronounced for water-sensitive industries and high-visibility firms but is mitigated by high institutional ownership, which acts as a governance buffer. For investors, the findings highlight the necessity of geospatial environmental, social and governance (ESG) due diligence that incorporates localized environmental hazards beyond self-reported disclosures. For managers, site selection is reframed as a strategic financial imperative to avoid “geographic stigma” and regulatory contagion. Policymakers are provided with evidence quantifying the economic ripple effects of severe pollution, supporting the case for stricter enforcement to preserve regional financial stability. This research is the first to empirically validate “cancer villages” as a distinct, socially constructed financial risk factor. It advances the ESG literature by conceptualizing “amplified water risk,” demonstrating how localized public health crises transform routine environmental liabilities into existential threats through geographic stigma and regulatory contagion, differing significantly from diffuse risks like climate change.

• semanticscholar https://doi.org/10.1108/cafr-02-2025-0018first seen 2026-08-09 05:55:03