Perceived Competition and Cost Stickiness

[Purpose] The purpose of this study is to investigate how perceived competition affectscost stickiness, specifically SG&A cost stickiness. Additionally, we examine how our resultsdepend on business strategy and corporate governance. [Methodology] We measure perceived competition by counting use occurrences ofcompetition－related words per 1,000 total words in the 10－K filings. [Findings] We find that firms with higher perceived competition exhibit greater coststickiness than firms with lower perceived competition. Our results are more robust for firmswith a prospector business strategy, and firms with low corporate governance. We also findthat when firms facing high competition exhibit higher cost stickiness, the firm’s futureperformance improves. Our results remain robust even after conducting propensity scorematching, entropy balancing, and accounting for firm and region－fixed effects. [Implications] Our study contributes to the literature in several ways. First, we provideempirical evidence on the relationship between perceived competition and SG&A coststickiness, demonstrating that firms with higher perceived competition adjust SG&A costsdownward to a lesser extent than those with lower perceived competition. Second, byanalyzing firms based on their strategic orientation (prospectors vs. defenders), we show thatthe degree of SG&A cost stickiness varies significantly with strategic positioning.