The impact of low-carbon city policy on corporate cost stickiness

We examine the impact of low-carbon city policy on corporate cost stickiness. Using a sample of Chinese A-share firms from 2008 to 2022, we document that cost stickiness increases for firms in a city with a low-carbon policy using a difference-in-differences research design. The findings are robust to an entropy balance method, alternative samples, placebo tests, after accounted for other environmental regulations, and after control for various time trend effects. The mechanism analysis suggests that easing financial constraints and engaging in green investments are the underlying logic behind the impact of low-carbon city policy on corporate cost stickiness. Additional analysis shows that the effect is more salient for firms in traditional manufacturing industries, which are state-owned, or belong to high technology industries. The economic analysis shows that while a firm's productivity generally decreases due to cost stickiness increase, the implementation of the low-carbon city policy offers significant benefits to offset the productivity decrease.