An Empirical Study On Cost Stickiness Of Chinese Listed Firms

The definition of cost stickiness is that costs increase more with activity increase than they decrease in response to equivalent activity decrease. This sticky cost behavior contradicts the traditional managing accounting model which assumes that costs behave symmetrically for activity increases and decreases. The popular explanations include "contract theory", "efficiency theory" and "opportunism theory". Since the operation of corporation is a very complex procedure, these theories can not explain what cause cost stickiness. They are almost based on managerial consideration to explain the cause, and emphasis the activities of managers too much. But few objective factors are included in these thories.By analyzing the environment and operation of firms, we suggest the basic cause of cost stickiness is the "sinking down" of cost; the cost stickiness is common, returning and reverse; the factors increasing cost stickiness include the situation of macro-economy, forecast of each industry, competition of business, improvement of company, capital structure and asset intensity. These factors intergrade to influence cost stickiness.Using a sample of 930 Chinese A-share listed firms from 2001 to 2005, we find operation costs are sticky in response to changes in revenues; operating costs increase, on average, by around 1.037% per 1% in revenues, but decrease by only 0.909% per 1% decrease in revenues. Costs tend to be less sticky over longer time-horizons and when firms sustain larger drops in revenue. Costs of firms with more debts are more sticky than those with less debts, and costs tend to be more sticky when firms have higher levels of asset intensity.