Abstract:
In the light of drawbacks in prior studies which neglects financing costs as a part of adjustment costs, this paper proposes that financial constraints can affect firm cost stickiness. Using the Chinese Annual Industrial Survey Database, and selecting firm ownership, leverage, size, regional marketization index, regional financial development index, and the generated factors by using factor analysis to measure financial constraints, the results show that financial constraints matter to cost stickiness, which supports our hypothesis. The tighter financial constraints firms face, the less sticky SG&A costs are. This paper not only provides a new angle to reveal and explain firm cost management, but also help comprehensively understand the effect of financial constraints on firms, especially on SMEs.
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