We hypothesize that firms located in more polluted areas are less able to recruit and retain quality human capital. First, using Baidu’s Search Volume Index, we document that people exhibit an intention to look for jobs in less polluted areas on days when air pollution occurs in the area where they are located. Second, exploiting the exogenous variation in air pollution caused by China’s central heating policy, we show that air pollution reduces the accumulation of executive talent and high-quality employees. This brain drain effect is more pronounced when people have concerns about their health triggered by air pollution. Third, firms located in polluted areas have poorer performance. This effect is more pronounced when firm performance has a greater dependence on human capital. 

JEL Classification: O3, Q5, J3
Keywords: Air pollution, Brain Drain, Human Capital, Firm Performance, China​