Research On The Relationship Between Demand Uncertainty And Enterprise Cost Elasticity

With the rapid spread of the "COVID-19" epidemic on a global scale in 2020,the economies of various countries have been hit hard,the fragility of the supply chain system has been further amplified,and the international economic and trade order has become more chaotic.As the world’s second largest economy and the largest trading nation,China is facing increasing uncertainty on the demand side.Micro-enterprises as the main market participant will undoubtedly face greater challenges.In this context,it is of great practical significance to deeply explore the impact of demand uncertainty on micro-firm behavior.Market demand is an important factor affecting economic development.In practice,entrepreneurs cannot determine market demand.To maximize profits,they can only adjust cost structure.It can be seen from this that under the macro background of increasing demand uncertainty,how a company conducts cost management will determine its realized profits and risks.This is not only a practical issue facing managers,but also related to the stable development of the national economy.With the help of the cost behavior analysis paradigm of the management decision-making view,this thesis systematically studies the above problems.Combining classical economic hypotheses and the reality of Chinese enterprise cost management,it explains the characteristics of the relationship between demand uncertainty and the cost elasticity of Chinese enterprises theoretically,and gives empirical evidence based on micro-data.By combing the bounded rational economic man hypothesis and expected utility theory,and use the financial data of China’s Ashare listed companies from 2010 to 2018 to empirically test the basic relationship between demand uncertainty and corporate cost elasticity and the characteristics of different industries.And further select the data of China’s A-share manufacturing listed companies from 2010 to 2018,respectively,from the perspective of resource constraints.corporate governance perspective,and the manager’s cognitive perspective to conduct empirical tests on the relationship between demand uncertainty and corporate cost elasticity.By combining incomplete contract theory and transaction cost theory,this paper analyzes the effect of adjustment costs on the relationship between demand uncertainty and enterprise cost elasticity;based on agency theory,analyzes the effect of agency problems on demand uncertainty and enterprise cost elasticity,and adopts scenario analysis that distinguishes the degree of product market competition verifies the mechanism of agency problems;based on the theory of expectations and psychology,analyzes the role of manager’s cognition on the relationship between demand uncertainty and enterprise cost elasticity.The main research conclusions obtained by combining normative research and empirical research are as follows:(1)The operating cost elasticity of Chinese A-share listed companies is generally positively correlated with the uncertainty of demand,indicating that when the uncertainty of demand increases,Chinese corporate managers are more inclined to choose risk-averse cost management decisions.Among them,there are differences in the relationship between business cost elasticity and demand uncertainty of enterprises in different industries,which are specifically reflected in:the cost elasticity of agricultural,manufacturing,and construction enterprises has a significant positive correlation with demand uncertainty,and the accommodation and catering industry and the Internet industry’s enterprise cost elasticity and demand uncertainty have a significant negative correlation.There are also differences in the relationship between cost elasticity and demand uncertainty in different cost subjects,specifically related in:the elasticity of sales management expenses and the elasticity of financial expenses have a negative correlation with the uncertainty of demand.(2)From the perspective of resource constraints,the relationship between demand uncertainty and cost elasticity is affected by adjustment cost factors,which are specifically expressed as:asset intensity,labor intensity,and enterprise scale have positive effect to the positive relationship between enterprise cost elasticity and demand uncertainty.It shows that when demand uncertainty increases,companies with higher adjustment costs have higher operating risks,and managers are more willing to avoid risks.The enterprise resource endowments have an impact on cost elasticity in increased demand uncertainty.(3)From the perspective of corporate governance,the relationship between demand uncertainty and cost elasticity is affected by agency problems,which are specifically expressed as:equity incentive intensity and equity concentration have a negative effect to the positive correlation between cost elasticity and demand uncertainty of Chinese enterprises,and the effects are different due to differences in the product market competition environment.When the product market competition is lower,the negative adjustment effect of equity incentives and equity concentration is more significant;and when demand increases,the negative adjustment effect of equity incentives and equity concentration is also more significant.Further research also found that the adjustment effect of equity incentives has "U"-shaped characteristics,while the adjustment effect of equity concentration has no obvious "U"-shaped characteristics.It shows that the corporate governance structure will directly affect the level of risk-taking of managers,leading to the change of cost elasticity in the uncertain demand.(4)From the perspective of manager’s cognitive,the relationship between demand uncertainty and cost elasticity is affected by manager’s expectations and psychological factors.Specifically,managers’ optimistic expectations and overconfidence play a negative role in the positive correlation between demand uncertainty and cost elasticity;managers’ pessimistic expectations play a positive role in the positive correlation between demand uncertainty and cost elasticity effect.It shows that the manager’s cognition affects the change trend of cost elasticity in the uncertainty of demand.Research conclusions show that management decision-making is an important factor affecting cost elasticity changes under demand uncertainty.The Fifth Plenary Session of the 19th CPC Central Committee proposed that "deepening the supply-side structural reform,using the advantages of my country’s super-large market and the potential of domestic demand,and building a new development pattern in which the domestic and international double circulation promoting each other",and the "supplyside structural reform" for the embodiment of the micro-enterprise level is the optimization of the cost structure.In the context of increasing demand uncertainty caused by the turmoil in the international situation,deepening the optimization of the internal cost structure of enterprises and urging enterprise managers to adapt to local conditions and choose the appropriate cost structure in accordance with the current conditions will benefit the development of the enterprise and the stability of the market.Although greater cost elasticity reduces the business risk of enterprises,it may also cause insufficient production capacity in the whole society,causing inflation when demand rises sharply;on the contrary,smaller cost elasticity may cause over capacity when demand drops sharply,and excessive operating leverage increases the probability of systemic financial risks.For this reason,the central government must pay attention to the changing trend of the cost structure of enterprises,adhere to the policy of"stabilizing expectations",fully pay attention to the expected changes of enterprise managers,and guide enterprise managers to implement cost management conducive to the stability of the market economy in a timely and appropriate manner.Measures to give full play to the active role of "visible hands",and use appropriate monetary and fiscal policies to guide business managers to make cost management decisions that are beneficial to society.Of course,the most important thing is to speed up the "supplyside" reform process and optimize the cost structure of enterprises,so as to improve production conditions,enhance the consumption environment,and achieve common prosperity.