The Nature Of Ownership,External Auditing And Cost Stickiness

The traditional theory of cost behavior suggests that there is a linear function relationship between the cost and volume of business that when the volume increase or Decrease in same proportions,the cost will change same magnitude.Noreen?Soderstrom(1997)?Cooper?Kaplan(1998)found that cost change different magnitude when the volume of business increase or decrease the same magnitude through case studies.Anderson et al(2003)proves the existence of cost stickiness by empirical evidence and proposed the concept of cost stickiness firstly,then many scholars verified the existence of cost stickiness.The concept of cost stickiness refers that when the volume of business increase or decrease in same percentage,the magnitude the cost increase is more than the magnitude the cost decrease,characteristics of the cost is easy to increase but hard to decrease.As an important manifestation of management performance,high cost stickiness will affect long-term development of company.As manufacturing industry is a pillar industry in our country,it is necessary to study its cost stickiness so that we can make suggestion and make contribute to the rapid development of the country.Currently,scholars domestic and foreign always study the factors of cost stickiness from the perspective of internal corporate governance and external legal environment,few scholars study if from the perspective of external audit.In this study,we will find the relationship between external audit and cost stickiness,and different effects under different ownership nature,make recommendations for improving our country's listed companies within the company's external and internal governance mechanism.This study has a certain theoretical and practical significance.After reading domestic and foreign papers,we establish the topics of this article.Through theoretical analysis,we propose three assumptions.Then we use the A-share listed manufacturing company data as the sample data to test the relationship between external audit and cost stickiness,and different effects under different ownership nature.The study find that TCE(Total Cost & Expense)?S&G(Selling General & Administration)exist significant cost stickiness,but CGS(Cost of Good Sold)doesn't exist such feature.High quality External audit(big ten audit or audit with industry expertise)can significantly suppress the TCE?S&G cost stickiness degree?When we divided the sample into state-owned company and private company,we find that in state-owned company,the effect of high quality external audit(big ten audit or audit with industry expertise)to S&G cost stickiness and TGE cost stickiness is more greater than it in private company.