Cost Stickiness of Private and Public Firms: Some Mediation Analyses

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 the degree of cost stickiness is, in general, greater for private firms than it is for public firms. Furthermore, we identify four candidate mediators for the association between listing status and cost stickiness: demand uncertainty, financial risk, reporting incentives, and ownership wedge. Mediation analyses reveal that demand uncertainty mainly accounts for the difference in cost stickiness between private and public firms. This finding suggests that public firms better address uncertainty by diversifying idiosyncratic risk in the capital market than private firms do and hence exhibit lower asymmetry in SG&A costs. Overall, we present evidence that access to equity financing influences operations and consequently affects cost behavior.