The Effect of Greenhouse Gas Regulation on Asymmetric Cost Behavior

Abstract

Purpose – This study analyzes the relationship between asymmetric cost behavior and greenhouse gas (GHG) regulation. This study examines cost behavior for cost of goods sold (CGS), selling, general and administrative cost (SG&AC), general and administrative cost (G&AC), and selling cost (SC). Design/Methodology/Approach – This study analyzes companies listed on the Korean Stock Exchange (KSE), and the analysis period is from 2011 to 2020. The sample taken for this study includes 5,120 firmyear observations. Findings – The main results are as follows. First, we find that when sales are decreased, the downward stickiness of CGS is accentuated in firm-related GHG regulation. This is interpreted as an increase in committed cost as much as idle resources due to an increase in facility investment to reduce GHG emissions. Second, this study demonstrates that the accentuation of the downward stickiness of CGS and G&AC by GHG regulation mainly occurs in owner manager firms. This study is the first in which GHG regulation affects asymmetric cost behavior. Research Implications – The results of this study will contribute to the development of corporate climate change strategies and government GHG regulation policy. This can provide a basis for market participants, such as financial analysts, in predicting the effect of GHG regulation on firm performance.