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Business Strategy, State-Owned Equity and Cost Stickiness: Evidence from Chinese Firms

Author

Listed:
  • Tingyong Zhong

    (School of Accountancy, Chongqing Technology and Business University, Chongqing 400067, China)

  • Fangcheng Sun

    (School of Accountancy, Chongqing Technology and Business University, Chongqing 400067, China)

  • Haiyan Zhou

    (Robert Vackar College of Business and Entrepreneurship, University of Texas Rio Grande Valley, Edinburg 78539, TX, USA)

  • Jeoung Yul Lee

    (National Research Base of Intelligent Manufacturing Service, Chongqing Technology and Business University, Chongqing 400067, China
    School of Business Management, Hongik University, Sejong 30016, Korea)

Abstract

This paper investigates the relationship between business strategy and cost stickiness under different ownership. Using the data from listed firms in China from 2002 to 2015, we find that first, firms with different strategies exhibit different cost behavior. The cost stickiness of choosing a differentiation strategy is higher than that of choosing a low-cost strategy. Second, management expectations will affect cost stickiness. Optimistic expectations will increase cost stickiness, while pessimistic expectations will reduce cost stickiness. Third, management expectations can adjust the relationship between business strategy and cost stickiness in terms of government-created advantages (GCAs). If management expectations tend to be optimistic, the cost stickiness is higher with a differentiation strategy than with a low-cost strategy. If management expectations tend to be pessimistic, then cost stickiness is higher with a low-cost strategy than with a differentiation strategy. Finally, the state-owned equity affects the extent of the effect of a differentiation strategy on cost stickiness. State-owned firms, which receive more GCAs than non-state-owned firms, have stronger cost stickiness than non-state-owned firms, even if both categories of firms use more differentiation strategy.

Suggested Citation

  • Tingyong Zhong & Fangcheng Sun & Haiyan Zhou & Jeoung Yul Lee, 2020. "Business Strategy, State-Owned Equity and Cost Stickiness: Evidence from Chinese Firms," Sustainability, MDPI, vol. 12(5), pages 1-21, March.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:5:p:1850-:d:326822
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    References listed on IDEAS

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