Does firm-level environmental policy uncertainty affect cost stickiness?

This study examines the impact of firm-level environmental policy uncertainty on the asymmetric cost behavior of firms. Utilizing data from U.S. public companies spanning the period from 2002 to 2020, I find that firms experiencing higher levels of environmental policy uncertainty exhibit lower degree of asymmetric cost behavior compared to firms with lower levels of such uncertainty, aligning with the predictions. The primary findings remain robust across multiple robustness checks. This research bridges the domains of environmental policy uncertainty and firms’ resource allocation decisions, contributing to the literature by establishing environmental policy uncertainty as an alternative determinant of cost stickiness.