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Free riding, empire building, and cost management prior to and post municipal enterprise mergers in Japan

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  • Shohei Nagasawa
  • Mizue Nagasawa

Abstract

Opportunistic overspending tendencies induce inflexible cost adjustments and encourage bad cost stickiness. To examine whether this perspective applies to public sector organizations (PSOs) and mergers, we test the asymmetric cost behaviors, (1) free riding and (2) empire building, associated with managerial incentives in merged Japanese municipal enterprises. Consequently, we find evidence that prior to mergers, administrators’ opportunistic spending originating from free-riding behavior affects cost stickiness; conversely, an analysis of the post-merger sample shows that the empire-building incentive might partly mitigate sticky costs. Our results corroborate the contradictory role of managerial discretion in resource adjustment decisions between pre- and post-mergers.

Suggested Citation

  • Shohei Nagasawa & Mizue Nagasawa, 2021. "Free riding, empire building, and cost management prior to and post municipal enterprise mergers in Japan," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 28(1), pages 94-116, January.
    • Handle: RePEc:taf:raaexx:v:28:y:2021:i:1:p:94-116
    DOI: 10.1080/16081625.2020.1845001
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    Cited by:

    1. Xiaowei Ma & Wanwan Ma & Xin Zhao & Xiaoxiao Zhou & Kamel Si Mohammed, 2024. "Increasing Burdens or Reducing Costs: Influence of Corporate Social Responsibility on Cost Stickiness," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(1), pages 2136-2155, March.
    2. Ligorio, Lorenzo & Caputo, Fabio & Venturelli, Andrea, 2022. "Sustainability disclosure and reporting by municipally owned water utilities," Utilities Policy, Elsevier, vol. 77(C).

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