Asymmetric Cost Behavior and Investment in R&D: Evidence from China’s Manufacturing Listed Companies

Renji Sun, Kung-Cheng Ho, Yan Gu and Chang-Chih Chen
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Renji Sun: The School of Business, East China University of Political Science and Law, Shanghai 201620, China
Kung-Cheng Ho: School of Finance, Zhongnan University of Economics and Law, Wuhan 430073, China
Yan Gu: The School of Economics, Fudan University, Shanghai 200433, China
Chang-Chih Chen: Wenlan School of Business, Zhongnan University of Economics and Law, Wuhan 430073, China

Sustainability, 2019, vol. 11, issue 6, 1-15

Abstract: Asymmetric cost behavior or stickiness has drawn attention in recent years. Although studies have focused on the causes of and factors contributing to cost stickiness, few have investigated its economic consequences. This paper empirically examines how firms’ asymmetric behavior influences their research and development (R&D) investment. Because cost stickiness increases innovation failure cost, we expect cost stickiness to reduce R&D expenditure. By using data from Chinese listed manufacturing firms between 2007 and 2015, we empirically test and confirm this hypothesis. On average, with one standard deviation added to the mean, R&D expenditure over total asset and that over total sales are reduced by 2.7% and 2.2%, respectively. Furthermore, the dampening effect of cost stickiness on R&D investment becomes more prominent with increasing risks faced by firms. Only SG&A cost stickiness exerts a dampening effect on R&D, whereas cost of goods sold (COGS) and total cost stickiness demonstrate no significant effects.

Keywords: sticky cost; R&D investment; economic consequence; risk (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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