How does corporate R&D investment respond to climate policy uncertainty? Evidence from heavy emitter firms in the United States

This study explores how climate policy uncertainty (CPU) affects research and development (R&D) investment of heavy emitter firms in the United States during 2000-2019. Our empirical evidence indicates that while CPU exerts a positive impact on R&D investment of general firms, it seems to be a completely different story for heavy emitter firms. After a battery of sensitivity tests, we find a robust negative impact of CPU on R&D investment of heavy emitters, suggesting that those firms play a "wait-and-see" strategy in response to changes in environmental policies until more is known to make decisions. However, such behavior is not observed in light emitters. Even among heavy emitters, we show that the impact of CPU is only pronounced in heavy emitters with more technology uncertainty. Further analyses show such an impact varies with management sentiment, managerial ability, and firm maturity. Our findings have implications for policymaking and corporate strategy of heavy emitters in response to CPU.