Can climate policy uncertainty reduce corporate cost stickiness?

Amid the low-carbon transition, how climate policy uncertainty (CPU) affects corporate cost stickiness remains an important issue for understanding firms’ resource adjustment behaviour in the face of institutional change. Using a panel dataset of Chinese A-share listed firms from 2009 to 2025, we find that CPU significantly reduces corporate cost stickiness. Specifically, when the direction of low-carbon transition is clearly established, but the pathways for its implementation remain uncertain, CPU heightens managers’ concerns about transition-related risks, particularly the risk of stranded assets, and encourages firms to undertake proactive precautionary resource adjustments rather than delay adjustment. Mechanistic analyses show that CPU enhances firms’ cost adjustment flexibility by reducing investment in firm-specific carbon-intensive assets and optimizing their human capital structures. Further analyses reveal that these effects are stronger among firms pursuing low-cost strategies and non-state-owned enterprises, and provide additional evidence consistent with the proposed managerial risk-aversion mechanism. Economic consequence analyses demonstrate that CPU-induced reduction in cost stickiness improves financial performance, reduces financial distress, and enhances organizational resilience. This study extends real options theory by highlighting the coexistence of waiting and risk-avoidance motives under irreversible transformation and provides new evidence on how firms proactively adjust resources in response to climate transition pressures.