Cost Stickiness and Stock Price Crash Risk

This study investigates the relationship between a firm’s cost stickiness and future stock price crash risk. We explore whether cost stickiness acts as a leading indicator of future stock price crash. The result of the empirical research supports our hypotheses. We also examine the effect of product market competition on the relationship between cost stickiness and stock price crash and find that the relationship becomes weak under high product market competition. In addition, we also test our empirical model excluding the period from 2007 to 2009 to explore whether our main results originate from the financial crisis periods when most firms experience stock price crash. We re-examine our empirical model by dividing our sample periods into two periods, from 1981 to 2006 and from 2010 to 2019. We find our empirical results are robust. This study implies that cost stickiness may capture managerial optimism that may lead bad new hoarding and stock price crash.