GHG Emissions and Firm Performance: Evidence from Mandatory Indoor Temperature Restriction

ABSTRACT I investigate the impact of greenhouse gas (GHG) emissions on firm performance by using mandatory indoor temperature restrictions as an exogenous shock. I find that designated energy-using firms experienced a decline in performance following the implementation of mandatory indoor temperature restrictions. This effect was not driven by customer or employee but by increased compliance costs. Although affected firms raised advertising expenditures to retain or attract customers, this strategy did not improve performance. Family-owned firms were more negatively affected than non-family-owned firms due to weaker preparedness for regulatory adaptation. The negative effect was concentrated in the second to fourth quarters, when outdoor temperatures exceeded the threshold. These findings contribute to the ongoing debate over the economic consequences of environmental regulation and highlight the importance of firm adaptability. The study also provides timely insights for policymakers aiming to balance carbon reduction goals with economic performance under increasingly stringent environmental mandates. Data Availability: Data are available from the sources cited in the text. JEL Classifications: M41; Q54; Q58.