Monetary Policy, Inefficient Investment And Cost Cost Stickiness

Cost stickiness is one of the hottest topic in the theory about the state of cost in recent years.The three reasons of cost stickiness,according to the recent research,are adjustment costs,optimistic expectations of managers and agency problems.Adjustment costs are objective factors and the latter two are concluded from the perspective of behavior of the managers.However,the reasons discussed above do not think about the corporate behavior perspective.In fact,corporate behavior conclude business activities and investment behavior.Investment behavior of enterprises can directly affect the change of cost.Overinvestment in an enterprise will cause huge sunk costs,,a large number of which is irreparable.Because of the sunk costs,the decrease rate of the cost when the company makes sales decline is less than the increase rate cost when the company makes sales increase,which is called cost stickiness.On the other hand,under-investment will bring less sunk costs,causing a low level of cost stickiness.Obviously,inefficient investment behavior will inevitably affect the cost stickiness.Therefore,this paper discuss the cause of cost stickiness from the perspective of Investment,which will deeply reveal the nature of costs stickiness.In addition,business investment behavior is affected by the macro environment.This paper argues that,it is of great importance considering about the macro monetary policy when study the relationship of inefficient investment and cost stickiness.So this article explores the relationship between the efficiency of investment and cost stickiness,combined with changes of monetary policy,inefficient investment and cost stickiness.This study is divided into five chapters,as follows:The first chapter is an introduction,outlining the background,significance,research ideas and research methods.The second chapter is the basic theory and literature review.According to the topic,this paper first introduces some core related concepts,such as the cost stickiness,inefficient investment and adjustment costs;secondly,the study analysis the monetary policy transmission mechanism,agency theory and free cash flow hypothesis,which is the theoretical basis of this paper,building up a solid theoretical foundation for further research studies.Finally,the article gives a comprehensive and summarized review of the literature.The third chapter is the study of inefficient investment and cost stickiness.This chapter explores the non-efficiency investments,discussing the relationship between inefficient investment and cost stickiness.On the basis of relevant theories,this part has made two assumptions.The fourth chapter is the study of monetary policy,inefficient investment and cost stickiness.Its structure is similar to the third chapter.This chapter explores the relationship among monetary policy,inefficient investment and cost stickiness.The part is based on the study of inefficient investment and cost stickiness,and further consider the impact of macro monetary policy factors.In this process,three hypotheses is proposed.Chapter five is about findings and analysis.As the concluding part of the article,this chapter is a general description and summary and explanation of the study and it describes the shortcomings and puts forward a prospect of this study.The main conclusions are as follows:The first conclusion is that the action of over-investment will increase the cost stickiness in the enterprise.This can be explained from the three aspects of the adjustment costs,agency issues and optimistic expectations of managers.Firstly,serious over-investment indicates a high level of original resource supply,accompanied by a large number of adjustment costs.Since the adjustment cost is an objective factor for cost stickiness,the more over-investment the company has,the more cost stickiness there will be.Secondly,from the perspective of the manager optimistic expectations: aggressive investment behavior of the enterprises led to increased corporate value in the short term,making managers more confident and have optimistic expectations about the future.This will increase cost stickiness.Finally,in the over-investment enterprise,the pursuit for the profits makes managers not willing to reduce the supply of resources immediately even if the sales decline.In this way,over-investment causes cost stickiness.The second conclusion is that under-investment will lead to less cost stickiness.Under-investment means expected invest of the companies is less than the actual investment.So under-investment means smaller adjustment costs which equals to less cost stickiness.The third conclusion is that under the loose monetary policy,the more over-investment the company has,the more cost stickiness there will be.Meanwhile,under the tightening monetary policy,the more over-investment the company has,the less cost stickiness there will be.Loose monetary policies will increase the external money from the bank through the credit channel,which increase free cash flow of the enterprises as well.The high level of free cash flow can lead to over-investment,and ultimately increase the cost stickiness.Similarly,under the tight monetary policy,credit funds which the enterprise get from the bank decline.It reduces the free cash flow of the company.In the case of a lower level of free cash flow,over-investment will occupy a lot of cash flow.So the cash flow for other use,such as allocation of resources,will decrease.Thus will decrease the agency problems and reduce cost stickiness.The last conclusion is that the relationship between the under-investment and cost stickiness is negative correlated in either loose or tight monetary policy.Under-investment will affect the cost stickiness through adjustment costs.Since the monetary policy will not change the amount of the adjustment costs,it will not change the relationship between under-investment and cost stickiness.The innovation of this paper is the study of the relationship about macro monetary policy,inefficient investment and cost stickiness,which describes the causes of cost stickiness from the investment behavior's perspective.