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Institutional investors and cost stickiness: Theory and evidence

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  • Chung, Chune Young
  • Hur, Seok-Kyun
  • Liu, Chang

Abstract

Cost stickiness measures the degree of suboptimal cost reduction in response to a decline in a firm’s activity. This study examines the role of institutional monitoring in addressing the value-decreasing cost-stickiness problem exhibited in many firms. Using alternative proxies for institutional monitoring, we find that long-term institutional investors are associated with reductions in cost stickiness and that these reductions lead to superior future market and accounting performance. Our findings are robust to different model specifications and are independent of the effect of internal governance.

Suggested Citation

  • Chung, Chune Young & Hur, Seok-Kyun & Liu, Chang, 2019. "Institutional investors and cost stickiness: Theory and evidence," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 336-350.
  • Handle: RePEc:eee:ecofin:v:47:y:2019:i:c:p:336-350
    DOI: 10.1016/j.najef.2018.05.002
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    2. Lijun Ma & Xin Wang & Che Zhang, 2021. "Does Religion Shape Corporate Cost Behavior?," Journal of Business Ethics, Springer, vol. 170(4), pages 835-855, May.
    3. Daeheon Choi & Paul Moon Sub Choi & Joung Hwa Choi & Chune Young Chung, 2020. "Does Sustainable Corporate Governance Enhance Accounting Practice? Evidence from the Korean Market," Sustainability, MDPI, vol. 12(7), pages 1-21, March.
    4. Daeheon Choi & Chune Young Chung & Soon-Ihl Samuel Hong & Jason Young, 2020. "The Role of Political Collusion in Corporate Performance in the Korean Market," Sustainability, MDPI, vol. 12(5), pages 1-18, March.
    5. Ali Amin & Rizwan Ali & Ramiz ur Rehman, 2022. "Cost Stickiness, Firm’s Dividend Payouts, and Family Ownership," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 27(1), pages 116-133, Jan-June.
    6. Daeheon Choi & Paul Moon Sub Choi & Joung Hwa Choi & Chune Young Chung, 2020. "Corporate Governance and Corporate Social Responsibility: Evidence from the Role of the Largest Institutional Blockholders in the Korean Market," Sustainability, MDPI, vol. 12(4), pages 1-15, February.
    7. Cristiana Cattaneo & Gaia Bassani, 2020. "Sticky costs: le determinanti e le sfide per manager e accademici," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2020(Suppl. 1), pages 103-126.
    8. Wulung Li & Ramachandran Natarajan & Yan Zhao & Kenneth Zheng, 2021. "The effect of management control mechanisms through risk-taking incentives on asymmetric cost behavior," Review of Quantitative Finance and Accounting, Springer, vol. 56(1), pages 219-243, January.
    9. Ibrahim, Awad Elsayed Awad & Ali, Hesham & Aboelkheir, Heba, 2022. "Cost stickiness: A systematic literature review of 27 years of research and a future research agenda," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 46(C).
    10. Mohammed Arkan Sahib Tileal & Farzaneh Nassirzadeh & Mohammad Javad Saei & Davood Askarany, 2023. "The Impact of Ownership Type on Labour Cost Stickiness," JRFM, MDPI, vol. 16(5), pages 1-17, May.
    11. Costa, Mabel D’ & Opare, Solomon, 2022. "Cost asymmetry around seasoned equity offerings," Journal of Behavioral and Experimental Finance, Elsevier, vol. 34(C).
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    More about this item

    Keywords

    Institutional monitoring; Cost stickiness; F-score; Corporate governance;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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