Abstract This study examines the relation between U.S. managers’ short-term exposure to air pollution and their forecasting ability. We focus on air pollution due to PM 2.5 , a fine particulate matter that can easily penetrate an indoor, climate-controlled environment. We show that the short-term ambient PM 2.5 level at the firm’s headquarters before a management earnings forecast issuance is negatively associated with the accuracy of the forecast. Also, the short-term ambient PM 2.5 level before an earnings announcement is negatively related to the likelihood of a concurrent management forecast issuance. These relations occur at PM 2.5 levels below the U.S. air quality standard. A battery of additional tests validate these findings. These results suggest that a transitory exposure to PM 2.5 at levels common in the United States temporarily decreases managers’ forecasting ability. The temporary cognitive impairment from short-term exposure to modest levels of PM 2.5 , as documented in epidemiological studies, is presumably the reason.

ABSTRACT In a tax—public goods reciprocity framework between citizens and the state, managers view taxes as a payment to the government in exchange for public goods, and hence they adjust their willingness to pay taxes as public good quality changes. We show that corporate tax planning intensity increases with ground‐level ozone pollution. Revisions in ozone pollution regulations cause counties that failed the revised and more stringent standards to reduce ozone pollution. Consequently, firms headquartered in these counties reduced corporate tax planning intensity relative to firms in other counties. The ozone‐tax link varies in the predicted directions with public attention to pollution, potential welfare loss due to ozone, managers’ stakeholder orientation, taxpayers’ polluting status, political preferences, and civic norms. We also find consistent results for Superfund cleanups of hazardous waste sites. Our research sheds light on reciprocity as a potential mechanism influencing corporate tax compliance.