This paper examines the impact of China’s green factory policy on corporate cost structure and the underlying mechanisms. Using a multi-period difference-in-differences model, we find that the green factory policy significantly increases corporate cost structure rigidity. Mechanism analysis indicates that the policy leads to increases in both environmental-oriented and innovation-oriented fixed cost investments, thereby contributing to increased cost rigidity. Moderation analyses suggest that policy overlap and policy intensity amplify the effect of the green factory policy on cost structure. Further investigation reveals that by enhancing cost rigidity and cost stickiness, the policy increases firms’ operational risks.
He et al. (Wed,) studied this question.