Financial Flexibility,Corporate Social Responsibility And Cost Stickiness

As China’s economic development enters deeper waters and the external environment becomes more uncertain,listed companies are faced with significant strategic opportunities and risk challenges.Against this backdrop,managers are placing greater emphasis on the use of flexibility in the development of business operations.Financial flexibility is an important manifestation of corporate flexibility,which refers to the ability of an enterprise to adjust its own situation according to changes in the market environment and to adapt to changes in the external environment by obtaining sufficient financial support.However,in the process of implementing financial flexibility in enterprises,there are some negative effects: on the one hand,due to retaining too much cash flow,it tends to exacerbate agency problems;on the other hand,it induces managers to be blindly optimistic and out of rationality in investment decisions,reducing the efficiency of enterprise resource allocation(Pandi and Ma Yuanju,2018)and causing resource redundancy.Cost stickiness is the result of resource redundancy brought about by resource allocation failure.Resource allocation failure triggered by financial flexibility increases cost stickiness and affects changes in the ability of enterprises to protect themselves against the risk of environmental uncertainty,which affects their sustainable development.Corporate social responsibility can better promote sustainable development of enterprises.This paper examines financial flexibility,corporate social responsibility and cost stickiness with important practical and long-term significance.This paper compares the literature on financial flexibility,corporate social responsibility and cost stickiness and firstly investigates the relationship between financial flexibility and cost stickiness;then,corporate social responsibility is added as a moderating variable to explore whether corporate social responsibility can play a weak moderating role in the relationship between financial flexibility and cost stickiness.Based on theories such as incomplete contract theory,principal-agent theory and stakeholder theory,this paper combines empirical evidence to investigate the relationship between financial flexibility,CSR and cost stickiness.Using OLS models,the financial data of China’s listed A-share enterprises in Shanghai and Shenzhen from 2008 to 2020 are regressed according to the hypotheses.In further testing and analysis,the paths through which financial flexibility affects cost stickiness are investigated to gain a more thorough understanding of the mechanism between financial flexibility and cost stickiness.At the same time,heterogeneity analysis is conducted to divide the sample data into two groups according to the level of environmental uncertainty,and empirically analyse the relationship between financial flexibility,corporate social responsibility and cost stickiness to investigate whether environmental uncertainty has an impact on the relationship between these three factors,so that companies can remain alert to external uncontrollable factors and take appropriate countermeasures to curb these negative effects.The findings show that financial flexibility deepens cost stickiness.Financial flexibility increases cost stickiness by adjusting cost paths,raising managers’ optimistic expectations and exacerbating agency problems.The empirical results on the moderating effect show that corporate social responsibility inhibits the effect of financial flexibility on cost stickiness.On the one hand,by actively fulfilling social responsibility,enterprises can play the role of stakeholder monitoring and governance to alleviate the agency problem;on the other hand,they can reduce the degree of information asymmetry by disclosing social responsibility information disclosure reports,and at the same time strengthen analysts’ attention to guide managers to make resource allocation decisions more prudently,enhance resource allocation efficiency,reduce redundant costs and alleviate the deepening of financial flexibility on cost stickiness degree.The empirical results of the heterogeneity analysis show that the deepening of financial flexibility on cost stickiness is more significant when the level of environmental uncertainty is higher;at the same time,the degree to which the relationship between the two is inhibited by the fulfilment of corporate social responsibility is also more pronounced.In the study of the paths through which financial flexibility affects cost stickiness,this paper confirms the "financial flexibility-overinvestment-cost stickiness" and "financial flexibility-adjustment cost-cost stickiness" paths,by using "overinvestment By using"overinvestment" as a proxy variable for managers’ optimistic expectations and agency problems,we verify that financial flexibility deepens cost stickiness through managers’ optimistic expectations and the agency problem path;meanwhile,we refer to Liu,Chang et al.(2020),who use "innovation investment" as a proxy variable for adjustment costs,and verify that financial flexibility deepens cost stickiness through the adjustment cost path.The paper also refers to Liu,Chang et al.On this basis,this paper conducts robustness tests,which include(i)addressing the possible reverse causality in the hypothesis through lagged independent variables;(ii)testing the self-selection effect of the explanatory variables through the Heckman two-stage test;(iii)verifying the reliability and robustness of the findings by replacing the dependent variable and(iv)shortening the time window.The main contributions of this paper are as follows: firstly,this paper studies the influence of financial flexibility on cost stickiness based on the perspective of corporate social responsibility,which enriches the study of cost stickiness influencing factors from the research perspective;secondly,it empirically proves the influence of financial flexibility and corporate social responsibility on cost stickiness,which helps enterprises to objectively understand financial flexibility as well as cost stickiness and pay attention to the monitoring and governance role played by stakeholders,which helps improve the attention of enterprises to social responsibility,enterprises reasonably implement financial flexibility,improve the efficiency of resource allocation and strengthen cost control.