Cost stickiness and stock price crash risk

Ahsan Habib and Mabel D Costa

Accounting and Finance, 2022, vol. 62, issue 4, 4247-4278

Abstract: We examine the association between cost stickiness and the risk of stock price crash, defined as asymmetry in the distribution of weekly stock returns. We use information opaqueness and heterogeneous investor beliefs as our two theoretical frameworks. Using a sample of US firms, we find a positive association between cost stickiness and crash risk. This association is more pronounced for firms with an opaque information environment as proxied by fewer analysts following. As efficient cost management is key to profit maximisation, studying the implications of cost stickiness makes a valuable contribution to the literature on cost management.

Date: 2022
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