Does Social Capital Affect Asymmetric Cost Behaviour? Evidence from U.S. Counties
41 Pages Posted: 7 Aug 2017 Last revised: 9 Aug 2017
Date Written: August 8, 2017
In this study, we examine the impact of social capital on asymmetric cost behaviour. Social capital captures the strength of civic norms and the density of social networks in a region. As such, it is a socio-economic factor that might affect managerial resource adjustment decisions via different channels. Social capital contributes to stable employment relationships and optimistic behaviour, but restrains managers from acting opportunistically. Using a sample of 65,148 firm-year observations across 788 U.S. counties, we find that firms headquartered in U.S. counties with high social capital exhibit significantly less asymmetric cost behaviour. Apparently, social capital restrains managers from taking self-centred resource adjustment decisions that would induce cost stickiness. This is in line with our additional finding, that altruistic norms to act in an ethical manner are the dominant channel for our setting, by which social capital affects cost behaviour. Our results corroborate the important role of managerial discretion in cost behaviour and make a significant contribution in understanding how environmental, local factors explain differences in sticky cost behaviour across firms within the same jurisdiction and the same cultural framework.
Keywords: Cost Behaviour, Cost Stickiness, Social Capital, Norms, Managerial Opportunism
JEL Classification: A13, M14, M40, M41
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