Internal Control Quality,Managerial Overconfidence And Cost Stickiness

With the more fierce external market competition and the increasing degree of environmental uncertainty,the modern enterprises pay more attention to cost management and cost control in order to maintain the core competitiveness and enhance the ability to resist risks in the market.Cost behavior analysis is important for cost control in the enterprises.The traditional cost behavior theory assumes that the change of cost and volume is proportional.However,many scholars find that the actual change of cost and volume in the enterprises is not the same as the above one.Specifically,the marginal growth rate of the cost when volume increases is greater than the marginal reduction rate of the cost when volume declines.The asymmetry phenomenon is called cost "stickiness" by Anderson for the first time.The cost stickiness causes the academic widespread attention.Many scholars actively explore the causes of cost stickiness and make suggestions for cost management in the enterprises.Managers own a lot of resources in the enterprises and control the expenses of enterprises.Therefore,it is of important value to study the causes of cost stickiness from the view of managers.Most scholars assume that managers are rational and find that managerial opportunistic motivation affects cost stickiness.But managers are limited rationality in real economic activities.After the behavioral finance theory has been put forward,managerial irrationality especially overconfidence has become the focus of academic research.However,there is not so much research on the effect of overconfidence on cost stickiness.At the same time,internal control is an effective governance mechanism,which can supervise and control the economic decisions of enterprises.In the context that requires enterpr:ises to improve the internal control system in our country,high-quality internal control can effectively restrain the managerial behavior and then affect the cost stickiness.Therefore,this thesis studies the relationship between internal control,managerial overconfidence and cost stickiness.In theoretical terms,this thesis enriches theoretical research of cost stickiness and studies the relationship between managerial overconfidence and cost stickiness.At the same time,this thesis puts the internal control into the above fram,ework to further deepen the understanding of cost stickiness.The difference of the effect of managerial overconfidence on cost stickiness in different internal control quality of enterprises is carried out.In practical terms,it provides a new way for listed companies to make reasonable cost decisions and optimize the allocation of resources.At the same time,it can increase forecast accuracy for analysts.Research contents include six parts:The first part is introduction.First of all,this part proposes the background and it puts forward the theoretical significance of this thesis by finding the deficiencies of theoretical research on cost stickiness.At the same time,this part puts forward the practical value from the practical point of view.Secondly,this part defines the core concepts including internal control,managerial overconfidence and cost stickiness.Finally,this part explicits the research content,research methods and innovation.The second part is literature review.This part reviews the literature from three aspects:the characteristics and causes of the cost stickiness,the relevant literature of the managerial overconfidence and the literature review of internal control.On this basis,this part summarizes the literature review and carries on the study.The third part is the theoretical analysis and research hypothesis.Firstly,this part discusses the specific content of the relevant theory such as cost stickiness theory,overconfidence theory and internal control theory.Secondly,this part analyses the existence of the cost stickiness,relationship between overconfidence and cost stickiness and how high quality internal control influences relationship between overconfidence and cost stickiness.Finally this part proposes three hypotheses.The fourth part is the research design.First of all,based on the data of Listed Companies in Shanghai and Shenzhen A shares for six years,the research samples are dropped by using certain criteria and the sources of each variable data are pointed out.Secondly,the part defines the variables of cost stickiness,managerial overconfidence,internal control and control variables in reference to the previous literature.Finally,this part designs the research model from the existing hypothesis.The fifth part is empirical test and result analysis.First of all,the descriptive statistics of the variables are used to observe the distribution of the data which includes expense change rate,revenue change rate and overconfidence.Secondly,the regression model.is used to test the relationship of internal control quality,managerial overconfidence and cost stickiness.Finally,a variety of methods are used to verify the consistency of the a'bove conclusions.The sixth part is the conclusions,policy recommendations and limitations.According to the empirical analysis of the fifth part,this part draws the conclusions of the study and puts forward the policy recommendations from the perspective of the enterprises' cost management,the ability of managers and internal control.Finally,this part describes the limitations of this thesis.Based on the sample data over the period 2010?2015 for listed companies of Shanghai and Shenzhen stock markets,we find the following conclusions:(1)the listed company's cost exists stickiness;(2)the managerial overconfidence enhances the cost stickiness;(3)the quality of internal control can inhibit the relationship between managerial overconfidence and cost stickiness.The innovations of this thesis are as follows:(1)Interdisciplinary research.This thesis will combine finance research with psychology research and study the relationship between managerial overconfidence and cost stickiness.(2)Reveal the influence mechanism of internal control on the relationship between managerial overconfidence and cost stickiness.The existing literature has examined the effects of governance mechanisms such as debt constraints and product market competition on the relationship between managerial overconfidence and cost stickiness.In this thesis,we find that high quality internal control can restrain managerial overconfidence behavior,and then reduce the cost stickiness.This is another innovation of this thesis.