This study examines the effect of climate policy uncertainty (CPU) on firm performance and aims to determine whether corporate social responsibility (CSR) mitigates the negative effect of CPU. It also investigates the moderating effect of green CEOs on the relationship between CPU and firm performance.
This study employs a panel data approach using a sample of the US-listed firms over the period 2011–2021. Fixed-effects models were used to assess the direct effect of CPU on firm performance and to examine the moderating roles of CSR and green CEOs. To address potential endogeneity concerns, robustness checks were conducted using the generalized method of moments and two-stage least squares (2SLS) estimators.
Using panel data from S&P 500 firms between 2011 and 2021, we find that CPU significantly reduces firm performance, while CSR mitigates this effect by enhancing stakeholder trust. Green CEOs further moderate the relationship between CPU and firm performance. A difference-in-differences (DID) analysis based on the clean power plan (CPP), supported by a placebo test, confirms that regulatory uncertainty imposes tangible costs on high emitting companies.
The study extends agency theory and transaction cost theory by showing how CPU introduces inefficiencies and short-termism in firm behavior. It also contributes to stakeholder theory by demonstrating that CSR and environmentally oriented leadership strengthen stakeholder trust and legitimacy, thereby enhancing organizational resilience under uncertainty.
Managers may view CSR as a strategic investment that strengthens adaptability and long-term performance in volatile regulatory environments. Policymakers are motivated to prioritize clear and predictable environmental policies, keeping companies perform better.
This study highlights the social benefits of responsible corporate behavior in a context of regulatory uncertainty. Companies that actively engage in CSR and adopt environmentally focused leadership are better positioned to support climate transition goals while maintaining economic stability. By reducing regulatory risk and encouraging sustainable practices, these companies contribute to environmental protection, stakeholder well-being and long-term economic resilience.
This study sheds new light on how companies manage uncertainty related to climate policy by examining the moderating role of CSR and green CEOs. Unlike previous research, which focused primarily on investment, productivity or asset prices, it highlights corporate performance and incorporates stakeholder theory and upper echelons theory to explain the mechanisms of resilience. The use of a DID approach based on the CPP as a concrete example of CPU ensures rigorous empirical evidence. The findings provide insights into internal governance strategies for managing regulatory risk.
