IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v142y2025ics0140988325000416.html
   My bibliography  Save this article

Can strict environmental regulation reduce firm cost stickiness? Evidence from the new environmental protection law in China

Author

Listed:
  • Chen, Yan
  • Du, Kerui
  • Sun, Ruiqi
  • Wang, Tiantian

Abstract

The existing literature presents considerable controversy regarding the impact of environmental regulations on enterprise competition. This paper adds to the literature with new evidence from the perspective of cost stickiness. External environmental regulations can create operational pressures for enterprises, leading to changes in cost adjustment. We utilize a difference-in-differences method to examine the impact of environmental regulations on firm cost stickiness, focusing specifically on the quasi-natural experiment of implementing China's new environmental protection law in 2015. Findings indicate that the implementation of this law exerts a substantial effect on reducing firm cost stickiness. Mechanism tests reveal that this reduction is primarily achieved through lowering adjustment costs, managing executive expectations, and addressing agency problems. Heterogeneity analysis shows these effects are pronounced in enterprises with strict financial constraints and CEO non-duality. By expanding upon existing literature concerning factors influencing cost stickiness and providing valuable empirical evidence supporting strengthened environmental regulation, this paper contributes to enhancing our understanding of the economic consequence of environmental governance.

Suggested Citation

  • Chen, Yan & Du, Kerui & Sun, Ruiqi & Wang, Tiantian, 2025. "Can strict environmental regulation reduce firm cost stickiness? Evidence from the new environmental protection law in China," Energy Economics, Elsevier, vol. 142(C).
    • Handle: RePEc:eee:eneeco:v:142:y:2025:i:c:s0140988325000416
    DOI: 10.1016/j.eneco.2025.108218
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988325000416
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2025.108218?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Environmental protection law; Cost stickiness; Adjustment cost; Executive expectations; Agency problems;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:142:y:2025:i:c:s0140988325000416. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.