Does Cost Management Affect Credit Risk?

Homburg, Carsten; Hoppe, André; Nasev, Julia; Reimer, Kristina; Uhrig‐Homburg, Marliese

doi:10.2139/ssrn.2792085

Cited by 10 publications

(12 citation statements)

References 35 publications

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“…Finally, as an extension of our findings, we need to speculate that cost stickiness can be directly and indirectly related to economic growth [64], political uncertainty [65], and credit risk [66]. Managers at internationalizing emerging market firms, particularly Chinese firms, should think over how these factors can be related to their institutional advantages.…”

Section: Theoretical and Managerial/policy Implicationsmentioning

confidence: 73%

Business Strategy, State-Owned Equity and Cost Stickiness: Evidence from Chinese Firms

et al. 2020

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This paper investigates the relationship between business strategy and cost stickiness under different ownership. Using the data from listed firms in China from 2002 to 2015, we find that first, firms with different strategies exhibit different cost behavior. The cost stickiness of choosing a differentiation strategy is higher than that of choosing a low-cost strategy. Second, management expectations will affect cost stickiness. Optimistic expectations will increase cost stickiness, while pessimistic expectations will reduce cost stickiness. Third, management expectations can adjust the relationship between business strategy and cost stickiness in terms of government-created advantages (GCAs). If management expectations tend to be optimistic, the cost stickiness is higher with a differentiation strategy than with a low-cost strategy. If management expectations tend to be pessimistic, then cost stickiness is higher with a low-cost strategy than with a differentiation strategy. Finally, the state-owned equity affects the extent of the effect of a differentiation strategy on cost stickiness. State-owned firms, which receive more GCAs than non-state-owned firms, have stronger cost stickiness than non-state-owned firms, even if both categories of firms use more differentiation strategy.

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Section: Theoretical and Managerial/policy Implicationsmentioning

confidence: 73%

Business Strategy, State-Owned Equity and Cost Stickiness: Evidence from Chinese Firms

et al. 2020

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“…Rouxelin et al stated that firms with higher sticky cost behavior demonstrate significantly lower unemployment rates in the current and subsequent quarter [14]. Homburg et al discovered that the rise in firms' cost stickiness is accompanied by increasing credit risks [26]. Specifically, firms' credit default swap spreads can increase significantly.…”

Section: Sticky Costmentioning

confidence: 99%

“…This subsequently leads to volatile earnings, which can result in inaccuracies in analysts' forecasts. Homburg et al stated that from the perspective of investors, cost stickiness significantly elevates the credit default swap spreads of firms, thus increasing the credit risks [26].…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…Since Anderson et al proposed the idea of cost stickiness, studies have mainly discussed the cause of or factors contributing to sticky costs [10]. Few studies have focused on the economic consequences of cost stickiness [11,12,26]. The reason is that in addition to the perspectives of investigation, accurately quantifying cost stickiness empirically is extremely difficult.…”

Section: Modelsmentioning

confidence: 99%

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Asymmetric Cost Behavior and Investment in R&D: Evidence from China’s Manufacturing Listed Companies

Sun

et al. 2019

Sustainability

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Asymmetric cost behavior or stickiness has drawn attention in recent years. Although studies have focused on the causes of and factors contributing to cost stickiness, few have investigated its economic consequences. This paper empirically examines how firms’ asymmetric behavior influences their research and development (R&D) investment. Because cost stickiness increases innovation failure cost, we expect cost stickiness to reduce R&D expenditure. By using data from Chinese listed manufacturing firms between 2007 and 2015, we empirically test and confirm this hypothesis. On average, with one standard deviation added to the mean, R&D expenditure over total asset and that over total sales are reduced by 2.7% and 2.2%, respectively. Furthermore, the dampening effect of cost stickiness on R&D investment becomes more prominent with increasing risks faced by firms. Only SG&A cost stickiness exerts a dampening effect on R&D, whereas cost of goods sold (COGS) and total cost stickiness demonstrate no significant effects.

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“…A working paper by Homburg et al . () directly examines the relationship between cost stickiness and credit risk. The authors in this study argue that cost stickiness can be viewed as an investment in a risky project.…”

Section: Introductionmentioning

confidence: 99%

Rollover risk and managerial cost adjustment decisions

Zheng

2018

Accounting & Finance

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Rollover risk is the risk that a firm may not be able to refinance its debt when it becomes due. We investigate whether managers' resource adjustment decisions are influenced by rollover risk and find that cost stickiness is decreasing in rollover risk. Additionally, the negative relationship between rollover risk and cost stickiness is stronger for firms with higher financial constraints and fewer financing sources. These results suggest that, when faced with elevated rollover risk, managers are willing to forego the benefits from a sticky cost behaviour. Finally, the use of an alternative firm-specific measure of cost stickiness corroborates our main finding.

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Does Cost Management Affect Credit Risk?

Cited by 10 publications

References 35 publications

Business Strategy, State-Owned Equity and Cost Stickiness: Evidence from Chinese Firms

Business Strategy, State-Owned Equity and Cost Stickiness: Evidence from Chinese Firms

Asymmetric Cost Behavior and Investment in R&D: Evidence from China’s Manufacturing Listed Companies

Rollover risk and managerial cost adjustment decisions

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