Financing constraints, internal control quality and cost stickiness

    Yufeng Chen Affiliation
    ; Yanbai Ma Affiliation


Managers think that retaining resources is more effective than rebuilding resources after exhausting them. However, financing constraints have brought great uncertainty to this resource decision-making implemented by managers. Data of manufacturing listed firms in China from 2009 to 2017 are used here to explore the impact of financing constraints on cost stickiness. This paper finds that internal financing constraints have a significant promoting effect on cost stickiness, while debt financing constraints and equity financing constraints have a significant restraining effect on cost stickiness. The internal control quality has a moderation effect on this relationship. In a firm with low quality of internal control, internal financing constraints can enhance cost stickiness, but the weakening effect of external financing on cost stickiness is not affected by internal control quality.

Keyword : financing constraints, financing sources, cost stickiness, adjustment cost, cost management, asymmetric cost behavior, internal control quality

How to Cite
Chen, Y., & Ma, Y. (2021). Financing constraints, internal control quality and cost stickiness. Journal of Business Economics and Management, 22(5), 1231-1251.
Published in Issue
Aug 31, 2021
Abstract Views
PDF Downloads
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.


Almeida, H., Campello, M., & Weisbach, M. (2004). The cash flow sensitivity of cash. The Journal of Finance, 59(43), 1777–1804.

Anderson, M., Banker, R., & Janakiraman, S. (2003). Are selling, general, and administrative costs “sticky”? Journal of Accounting Research, 41(1), 47–63.

Banker, R., Byzalov, D., & Chen, L. (2013). Employment protection legislation, adjustment costs and cross-country differences in cost behavior. Journal of Accounting and Economics, 51(1), 111–127.

Banker, R., Byzalov, D., & Plehn-Dujowich, J. (2011). Sticky cost behavior: Theory and evidence. AAA 2011 Management Accounting Section (MAS) Meeting Paper.

Banker, R., & Johnston, H. (1993). An empirical study of cost drivers in the U.S. airline industry. The Accounting Review, 68(3), 576–601.

Baumgarten, D. (2012). Cost stickiness phenomenon: Causes, characteristics and implications for fundamental analysis and financial analysts forecasts. Springer.

Bradbury, M., & Scott, T. (2018). Do managers forecast asymmetric cost behavior? Australian Journal of Management, 43(4), 538–554.

Calleja, K., Steliaros, M., & Thomas, D. (2006). A note on cost stickiness: Some international comparison. Management Accounting Research, 12(2), 127–140.

Campello, M., Graham, J., & Harvey, C. (2010). The real effects of financial constraints: Evidence from a financial crisis. Journal of Financial Economics, 97(3), 470–487.

Chen, C., Lu, H., & Sougiannis, T. (2012). The agency problem, corporate governance, and the asymmetrical behavior of selling, general, and administrative costs. Contemporary Accounting Research, 29(1), 252–282.

Chen, C., Gores, T., Nasev, J., & Wu, S. (2021). CFO overconfidence and cost behavior. Journal of Management Accounting Research, 33.

Chen, Y., & Hu, N. (2017). Credit default swaps and cost stickiness.

Cheng, Q., Goh, B., & Kim, J. (2014). Internal control and operational efficiency. Contemporary Accounting Research, 35(2), 1102–1139.

Cheng, S., Jiang, W., & Zeng, Y. (2016). Does access to capital affect cost stickiness? Evidence from China. Asia-Pacific Journal of Accounting & Economics, 25(1–2), 177–198.

China Securities Regulatory Commission. (2012). Guidelines for Listed Firms’ Industry Classification (Revised 2012).

China Securities Regulatory Commission. (2018). Regulatory Requirements for Guiding and Regulating the Financing Behavior of Listed Firms.

Choi, S., Hwang, I., Lee, M., & Lee, W. (2017). Cost stickiness of private and public firms (Working Paper).

Dierynck, B., Landsman, W., & Renders, A. (2012). Do managerial incentives drive cost behavior? Evidence about the roles of the zero earnings benchmark for labor cost behavior in Belgian private firms. The Accounting Review, 87(4), 1219–1246.

Doms, M., & Dunne, T. (1998). Capital adjustment patterns in manufacturing plants. Review of Economic Dynamics, 1(2), 409–429.

Fazzari, S., Hubbard, R., Petersen, B., Blinder, A., & Poterba, J. (1988). Financing constraints and corporate investment. Brookings Papers on Economic Activity, (1), 141–195.

Hall, B., & Lerner, J. (2010). The financing of R&D and innovation. In B. Hall & N. Rosenberg (Eds), Handbook of the economics of innovation (pp. 609–639). Elsevier.

Hartlieb, S., Loy, T., & Eierle, B. (2020a). Does community social capital affect asymmetric cost behaviour? Management Accounting Research, 46, 100640.

Hartlieb, S., Loy, T., & Eierle, B. (2020b). The effect of generalized trust on cost stickiness: Cross-country evidence. The International Journal of Accounting, 55(4), 2050018.

Hassanein, A., & Younis, M. (2020). Cost stickiness behavior and financial crisis: Evidence from the UK chemical industry. Corporate Ownership & Control, 17(2), 46–56.

Homburg, C., Hoppe, A., Nasev, J., Reimer, K., & Uhrig-Homburg, M. (2018). Cost stickiness and credit risk (Working Paper).

Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.

Kaplan, S., & Zingales, L. (2000). Investment-cash flow sensitivities are not valid measures of financing constraints. The Quarterly Journal of Economics, 115(2), 707–712.

Kim, J., Lee, J., & Park, J. (2019). Internal control weakness and the asymmetrical behavior of selling, general, and administrative costs. Journal of Accounting, Auditing and Finance.

Li, W., & Zheng, K. (2017). Product market competition and cost stickiness. Review of Quantitative Finance and Accounting, 49(2), 283–313.

Malik, M. (2012). A review and synthesis of “cost stickiness” literature (Working Paper).

Navarro, P., Robb, S., Sutton, S., & Weisner, M. (2020). The cost stickiness of information technology material weaknesses: An intertemporal comparison between it-related and other material weaknesses. International Journal of Accounting Information Systems, 37, 100454.

Noreen, E. (1991). Condition under which activity-based cost systems provided relevant cost. Journal of Management Accounting Research, 3, 159–168.

Noreen, E., & Soderstrom, N. (1997). The accuracy of proportional cost models: Evidence from hospital service departments. Review of Accounting Studies, 2(1), 89–114.

Pfann, G., & Palm, F. (1993). Asymmetric adjustment costs in non-linear labor demand models for the Netherlands and U.K. manufacturing sectors. Review of Economic Studies, 60(2), 397–412.

Prieto, A. (2019). Does cost stickiness affect capital structure? Evidence from Korea. Journal of Management Accounting Research, 19(2), 27–57.

Salehi, M., Ziba, N., & Gah, A. (2018). The relationship between cost stickiness and financial reporting quality in Tehran Stock Exchange. International Journal of Productivity and Performance Management, 67(9), 1550–1565.

Subramaniam, C., & Weidenmier, M. (2016). Additional evidence on the sticky behavior of costs. Advances in Management Accounting, 26, 275–305.

Sun, Z., & Liu, H. (2004). The expense “stickiness” behavior of Chinese listed firms. Economic Research Journal, 12, 26–34 (in Chinese).

Tan, W., & Ma, Z. (2016). Ownership, internal capital market, and financing costs. Emerging Markets Finance and Trade, 52(5), 1259–1278.

Tang, Q. (2020). Cost stickiness, corporate future losses and audit costs. American Journal of Industrial and Business Management, 10(1), 110–134.

Yasukata, K. (2011). Are “Sticky Costs” the result of deliberate decision of managers? (Working Paper). Kinki University.

Zhu, Q., & Yang, Y. (2019). Study on supply chain finance, internal control and SMEs financing constraints. In Advances in Economics, Business and Management Research: Vol. 91. 1st International Symposium on Economic Development and Management Innovation (EDMI 2019) (pp. 442–449). Atlantis Press.