The Correlation Study Of Cost Stickiness, Corporate Governance And Legal Protection Of Ivestors

Cost behavior which is an important research topic, has a major impact on the production decisions and the investment decision-making of the enterprise. Enterprise at the business measures ascension of the marginal cost increment has great capacity to reduce quantity in the marginal cost for amount of business to descend, which is called the companies cost"stickiness". Currently, the prevailing interpretation of the cost stickiness is based on the theory of opportunism from the theory of separation of ownership. Corporate governance and legal protection of investors are important legal mechanisms and safeguards to curb the trend of the opportunistic behavior of the management. Therefore, the study of corporate governance, legal protection of investors is of great significance to bind the cost stickiness and also has important value on the understanding of the cost of the enterprise agency.Firstly, this paper defines the meaning of cost stickiness, presents the Chinese and foreign literature in order and produces the subject of the study clearly. Secondly, this paper puts forward three hypotheses from the board characteristics, ownership structure and legal protection of investors, based on the principal-agent theory and the theory of investor protection and introducing the mitigation role of the internal and external mechanisms of corporate governance to the agency problems. Furthermore, this paper collects data from the annual report of the manufacturing businesses over the period of 1999-2005, uses econometric models to examine the correlation of the cost stickiness,corporate governance and the legal protection of investors empirically, and presents the policies and the recommendations to better the cost stickiness. It is shown that serious cost stickiness exists in Chinese enterprises actually. Cost stickiness is enhanced significantly because of the concurrent of chairman and general manager. The independence of the board is undermined and the agency problems are not alleviated. The increase in shareholding of the largest shareholders provides a good incentive to monitor the management and thus they are able to inhibit the opportunism of the management in the cost management, and thus cost stickiness is reduced. In the institutional environment, the better the law protects investors, the lower the cost stickiness is.