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NEVs are of strategic importance to a country to cope with environmental degradation and reshape its future industrial layouts. We would like to focus on the relationship between the internal mechanisms of firms in the NEVs industry and the macro-fiscal environment. In this study, we want to know whether industry policy affects cost stickiness by influencing managerial decisions in new energy vehicles (NEVs), whether grant and tax incentives differ in influencing managers' expectations and cost stickiness, and whether managers behave short-termism in asymmetric cost response. First, we identify and collect data on 573 NEVs listed firms from China's A-share market. Following the two-period model of Banker, Byzalov, Ciftci and Mashruwala (2014), we add a new condition of a prior sales decrease to observe changes in cost stickiness and interpret industry policy as the signal managers rely on to adjust resource. Finally, we compare the R&D cost and SG&A cost to see whether there is managerial short-run behavior. Based on these methods, we conclude that in NEVs higher grant and tax incentives trigger more optimistic expectations, and are associated with significantly greater cost stickiness even if prior sales fell. Compared to SG&A cost, we find grant makes R&D cost sticky in the current period when faced with a prior sales decrease, while tax incentives make R&D cost anti-sticky, which may be caused by agency problems. This research further demonstrates the relationship between industry policy and cost stickiness, fills the void in analyzing the specific policy for developing NEVs, and identifies the role of managerial decisions in cost response. Our paper examines the impact of industrial policy on cost stickiness from the perspective of managers' expectations. This enriches the existing research on industrial policy and cost stickiness, which previously focused on the effect of industrial policy on adjusting resources. It also focuses on popular industries to find out the characteristics of NEVs that are more optimistic about industrial policy.
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