AAA Spark Meeting of the Regions

State Culture and Cost Stickiness

• In Event: Cost Behaviors

Abstract

This study examines the effect of state culture on firms’ asymmetric cost reactions to sales changes (cost stickiness). Using a sample of firms across U.S. states, we find a negative association between tight state culture and cost stickiness. We also find that the negative effect of a tight state culture on cost stickiness is less pronounced with higher managerial ability. The results suggest that a tight (compared to loose) state culture provides a business environment in which managers reduce adjustment costs, their expectations of future demand, and empire-building incentives. Furthermore, competent managers are sensitive to private benefits with empire-building incentives in aligning resources, which in turn is reflected in the degree of cost stickiness, mitigating the negative impact of tight state culture on cost stickiness.

Authors

• Minyoung Noh, California State University, Los Angeles

• Jimi Park, Hawaii Pacific University