Free Cash Flow,Debt Constraint And Cost Stickiness

In the modern society with such a high degree of marketization,cost management has become an irreplaceable factor to improve core competitiveness in enterprise.Research on cost stickiness not only helps to reveal the cost management behavior of enterprises.but also conducive to the investors of the enterprise to understand the quality of earnings information and predict the future earnings more accurately from the angle of cost behavior and then to evaluate the enterprise value,so more and more scholars start to follow up the research of cost stickness.Currently the research of the causes of the sticky costs is mainly focused on management opportunism,and it is also the perspective of most scholars to discuss the cost stickiness.Managers work as the executors and have the power to determine the resources commitment in enterprise.Self-interest managers would encroach on the interests of the stockholders which making the cost of sticky characteristics.As an important way to restrain the behavior of the management,the debt constraint will further inhibit the cost stickiness which caused by the abuse of free cash flow by the managers Therefore,it is important to discuss whether debt constraints will have an effect on the cost of stickinessThe paper is started from agency theory,analyzing the mechanism of free cash flow which induced managers' empire building behavior and thus bring cost stickiness firstly.And then analyzing the constraints of the relationship between free cash flow and debt constraint with different sources and different scales debt.Based on regression test of the sample choose from China A-share manufacturing industry company board from the year 2011 to 2015.discussing three problems as following(1)The existence of cost stickiness in manufacturing industry companies;(2)The positive relationship between free cash flow and cost stickiness;(3)The different effects of different scales/maturity and sources of debt mechanism on cost stickiness.After empirical research,we conclude:(1)There exists cost stickiness in Chinese manufacturing industry companies;(2)Free cash flow is positively related to cost stickiness.(3)The scale of debt has an inhibitory effect on the positive relationship between free cash flow and cost stickiness.What's more.Short-term debt and bank borrowing are more pronounced.The paper links free cash flow,debt constraint and cost stickiness,and establishes a systematic and complete framework that not only enriches the field of cost stickiness,but also provides a new governance perspective for debt constraint.