Does access to capital affect cost stickiness? Evidence from China

Abstract

We study the effect of limited access to capital on firm cost stickiness, using data from a large sample of Chinese private firms over 1998-2007. Our results show that on average SG&A costs are anti-sticky. For firms in regions with lower levels of financial development, SG&A costs have lower sensitivity to sales increases and exhibit lower stickiness. Overall our findings suggest access to capital as an important determinant of cost stickiness.

A influência do ativo imobilizado no comportamento assimétrico dos custos

“…A partir do trabalho seminal de Anderson et al (2003), vários estudos investigaram o comportamento assimétrico dos custos e seus determinantes (CALLEJA; STELIAROS; THOMAS, 2006;GRUCA, 2008;KAMA;WEISS, 2013;CHEUNG;KIM;HUANG, 2018;CHENG;JIANG;ZEN, 2018). Dentre as explicações mais recorrentes para esse fenômeno, destaca-se a proporção de custos fixos em relação ao custo total (BANKER; BYZALOV (2014), sendo que empresas que possuem maior proporção de custos fixos encontram maiores dificuldades para gerenciar suas operações em momentos de oscilações no volume de atividade, dada a complexidade que envolve as decisões para a redução da capacidade instalada (PORPORATO; WERBIN, 2010;BORGERT;LUNKES, 2014).…”

Trade credit and cost stickiness

“…The financing advantage theory suggests that it is easier for suppliers to investigate the creditworthiness of clients, and force repayments, because of frequent visits by the supplier to the client’s premises that lower information asymmetry (Petersen and Rajan, 1997). Bank loans usually contain stricter conditions, and require stringent collateral, owing to the heightened information asymmetry between bank (the lender), and client (the borrower), which leads to some borrowers being credit‐rationed by banks (Yang, 2011; Cheng et al , 2018). Trade credit can reduce transaction costs for the client by cumulating and paying on a monthly or quarterly basis, instead of every time the goods are delivered (Petersen and Rajan, 1997).…”

“…However, from a resource adjustment theory perspective, one can argue that, once committed, resources are not easy to scale down without incurring additional adjustment costs, e.g., severance pay to terminated employees, pressure from media and regulators. Similarly, there is cost related to upward resource adjustment, such as training costs of new employees, and transaction costs of purchasing new equipment (Cheng et al , 2018). For instance, if firms requiring specialised skilled workers respond to a temporary drop in demand by firing such workers, then the subsequent search and hiring costs might outweigh the opportunity costs of retaining the workers.…”

Rollover risk and managerial cost adjustment decisions

“…Finally, Cheng et al . () use data from a large sample of Chinese private firms spanning 1998–2007 and find that for firms located in regions with lower levels of financial development, SG&A costs have lower sensitivity to sales increases and exhibit lower cost stickiness. Their findings suggest that access to capital is an important determinant of cost stickiness.…”

“…Our study is related to Cheng et al . () in that access to capital is likely correlated with the availability of firms’ alternative financing sources. However, our study is more focused on the effect of rollover risk on cost stickiness, whereby rollover risk results from firms’ debt maturing structure.…”