Cost Stickiness of Private and Public Firms

56 Pages Posted: 16 Aug 2017

See all articles by Sera Choi

Sera Choi

Seoul National University

Iny Hwang

Seoul National University - College of Business Administration

Moonyoung Lee

Duksung Women's University

Woo-Jong Lee

Seoul National University

Date Written: July 2017

Abstract

This paper extends prior literature on cost behavior by providing evidence of whether and how access to public financing affects the degree of SG&A cost stickiness. Based on a comprehensive dataset covering both public and private firms in Korea, we document that cost stickiness is in general greater in private firms than it is in public firms. Mediation analyses reveal that demand uncertainty mainly accounts for the difference in cost stickiness between private and public firms. Our findings imply that public firms better address uncertainty by diversifying idiosyncratic risk in the capital market than private firms do, which results in greater asymmetry in SG&A costs for private firms. Overall, we present evidence that access to equity financing influences operations and hence, affects the cost structure of a firm.

Keywords: Cost Behavior, Cost Stickiness, Equity Financing, Private Companies, Demand Uncertainty, Financial Risk

Suggested Citation

Choi, Sera and Hwang, Iny and Lee, Moonyoung and Lee, Woo-Jong, Cost Stickiness of Private and Public Firms (July 2017). Available at SSRN: https://ssrn.com/abstract=3019762

Sera Choi (Contact Author)

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)
+82-10-9241-1394 (Phone)

Iny Hwang

Seoul National University - College of Business Administration ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)
+82-2-880-6942 (Phone)

Moonyoung Lee

Duksung Women's University ( email )

33, Samyangro 144Gil
Dobong Gu
Seoul, 132-714
Korea, Republic of (South Korea)

Woo-Jong Lee

Seoul National University ( email )

Gwanak-ro 1, Gwanak-gu
Seoul, 08826
Korea, Republic of (South Korea)

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