Cost Sticky And Earnings Information

Considering the development of scientific and technological progress, cost plays an increasingly important role in company. It is more realistic and feasible to reduce cost under the same revenue than reduce revenue under the same cost in the competitive system. All of the decisions in the company are associated with costs. There is no space for development and if a company pays no attention to the cost. And there is no investor to grab if a company without space for development. Since the management and investors depend on the financial datas to assess the economic benefits, the focus of the enterprise is the cost of the daily production management. A series of foreign studies show that(Cooper& Kaplan,1998; Anderson, Banker and Janakiraman,2003; Banker& Byzalov,2010), the cost and volume of business is not in a completely linear relationship while cost increase in business increase is greater than cost decrease in equivalent business decrease. That is called "cost sticky". How dose cost sticky influence the daily production and activities of the company? What kind of the information will be passed to investors in the capital market? It is important for the cost studies, cost decision-makings and he steady operation of the capital market to answer these questions. And the relating studies are still rare. In view of all this, this paper studies those issues on the foundation of the literatures.This paper selects Chinese A-share listed firms in 1999-2012 for the study and analyses the effect of cost sticky on earnings information content and earnings response coefficient. Empirical data shows that a firm with sticker costs results in a greater decrease in earnings and increase the variability of the earnings distribution. And these lead to release more earnings information content. While investors in the capital market will consider the influence of cost sticky on the corporate value and future development, the sticker cost of a company, the bigger cut down on ERC.Furthermore, we research cost sticky on three different situations:Different ownership characteristics, before/after the financial crisis and different market process. We found that the effect of cost stick on ERC under state-owned companies is greater than non-state-owned companies. The results of before/after the financial crisis show that investors recognized the business strategy and management expectations of sticker companies. Besides, investors are more sensitive to the sticker companies in high degree of marketization.