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

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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)

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.

Suggested Citation

  • Renji Sun & Kung-Cheng Ho & Yan Gu & Chang-Chih Chen, 2019. "Asymmetric Cost Behavior and Investment in R&D: Evidence from China’s Manufacturing Listed Companies," Sustainability, MDPI, vol. 11(6), pages 1-15, March.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:6:p:1785-:d:216859
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    References listed on IDEAS

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