Does Cost Stickiness Affect Capital Structure? Evidence from Korea

Tulcanaza-Prieto, Ana Belén; Koo, Jeong-Ho; Lee, Young-Hwan

doi:10.31507/kjmar.2019.8.19.2.27

Cited by 11 publications

(12 citation statements)

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“…The 2SLS model assumes that the dependent variable's error terms are correlated with the independent variables. Errors terms from Equation (5), however, were not normally distributed in our sample and the Pearson correlation matrix did not reveal high and significant (at the 5% level) coefficients between independent variables and REM residuals [40]. Nevertheless, to improve the robustness of our model, we used 2SLS regression analysis.…”

Section: Two-stage Least Square Regression Analysismentioning

confidence: 96%

Effect of Leverage on Real Earnings Management: Evidence from Korea

Tulcanaza-Prieto¹,

Lee²,

Koo³

2020

Sustainability

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This study examines how leverage affects real earnings management (REM) in non-financial firms listed on the Korea Composite Stock Price Index from 2010 to 2018 by employing total, short-term, and long-term debt ratios (i.e., leverage) as independent variables and four REM metrics as dependent variables. We find a significant positive relationship between leverage and REM in suspicious firms, whereas the effect of leverage is insignificant in non-suspicious firms. We also find that the positive relationship between both variables is stronger in the second half of the fiscal year, which shows the prevalence of the seasonality of REM, as managers collect high-frequency financial information during this period. These findings are consistent with those in the literature that managers increase firm leverage and REM activities to reduce their probability of being discovered, since financial statements in the interim quarters are not often audited. Our study complements the literature by introducing quarterly data to identify clearly REM activities and detect the strongest effect on the relationship between REM and leverage. Moreover, our results from the two-stage least square (2SLS) regression analysis are consistent with our previous findings.

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Section: Two-stage Least Square Regression Analysismentioning

confidence: 96%

Effect of Leverage on Real Earnings Management: Evidence from Korea

Tulcanaza-Prieto¹,

Lee²,

Koo³

2020

Sustainability

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“…Prieto et al . 2019) because firms with higher fixed costs in their cost structure are less likely to raise capital through debt (e.g. Abu‐Serdaneh 2014).…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

“…Overall, firms' cost behavior can significantly influence their future earnings forecasts, equity issuance decisions, and market investors' perceptions (e.g. Weiss 2010;Prieto et al 2019;Tang et al 2020). Thus, it might also substantially impact corporate SEO decisions and the corresponding SEO returns.…”

Section: Introductionmentioning

confidence: 99%

Do Cost Behaviors Affect Cost of Equity: Evidence from Seasoned Equity Offering?

Xiao

2023

Asia-Pac J of Fin Stud

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This study investigates the impact of firms' cost behavior on their seasoned equity offering (SEO) performance. The empirical findings show that cost‐stickier SEO firms experience more negative SEO cumulative abnormal returns (CARs). The economic mechanism of this association is that cost‐stickier SEO firms deal with higher information asymmetry and issue fewer debts, which reduce their SEO CARs. SEO firm cost behavior also affects corporate SEO decisions and announcement returns in different life cycles. Among the three economic mechanisms, the information asymmetry channel has been found as the dominant one. This study also indicates that cost‐stickier firms are less likely to conduct SEOs than their counterparts. In contrast, the motivation for Chinese SEO issuance for cost‐stickier firms is market timing rather than adjusting the capital structure or financing for investment and growth. Additionally, the negative impact of cost stickiness on corporate SEO returns is less pronounced for firms associated with industry‐specialized auditors and greater corporate governance capacity but more substantial for SEO firms with higher free cash flow. All main findings are consistent in a number of endogenous tests, including the two‐stage least squares test, the generalized method of moments estimation, and the control of alternative fixed effects. These conclusions also passed several robustness tests such as an alternative factor model and event windows and an alternative proxy of cost stickiness.

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“…Campello et al (2010) finds that although firms with financing constraints will make plans to cut technology spending, employment and capital expenditure, they will also exhaust more cash and use more credit lines because they are worried that banks will restrict access and sell more assets to fund their operations in the future. Accordingly, there is a significant negative relationship between the asymmetrical behavior of cost and capital structure in firms with a high-level of cost stickiness (Prieto, 2019). Ultimately, firm's resource adjustment plan will change with the magnitude of financing constraints.…”

Section: Literature Reviewmentioning

confidence: 99%

Financing Constraints, Internal Control Quality and Cost Stickiness

Chen

2021

Journal of Business Economics and Management

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Managers think that retaining resources is more effective than rebuilding resources after exhausting them. However, financing constraints have brought great uncertainty to this resource decision-making implemented by managers. Data of manufacturing listed firms in China from 2009 to 2017 are used here to explore the impact of financing constraints on cost stickiness. This paper finds that internal financing constraints have a significant promoting effect on cost stickiness, while debt financing constraints and equity financing constraints have a significant restraining effect on cost stickiness. The internal control quality has a moderation effect on this relationship. In a firm with low quality of internal control, internal financing constraints can enhance cost stickiness, but the weakening effect of external financing on cost stickiness is not affected by internal control quality.

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Does Cost Stickiness Affect Capital Structure? Evidence from Korea

Cited by 11 publications

References 0 publications

Effect of Leverage on Real Earnings Management: Evidence from Korea

Effect of Leverage on Real Earnings Management: Evidence from Korea

Do Cost Behaviors Affect Cost of Equity: Evidence from Seasoned Equity Offering?

Financing Constraints, Internal Control Quality and Cost Stickiness

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