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Access to finance and cost stickiness: Evidence from anti-recharacterization laws

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  • Li, Tongxia
  • Lu, Chun
  • Xu, Lei

Abstract

This paper examines the impact of financial constraints on asymmetric cost behavior (i.e., cost stickiness). Specifically, we use a natural experiment — the staggered introduction of the anti-recharacterization laws (ARLs) — to investigate the causal relationship between financial constraints and cost stickiness. Implementing anti-recharacterization state regulation increases the value of a firm's collateral, resulting in lower external financing costs and improved credit market access. We hypothesize that this improves firms' ability to obtain external funding for expansion and allows firms facing sales decreases to retain their resources for a potential rebound. This results in an increase in cost stickiness. Our findings support the hypothesis that cost stickiness increases after the passage of the ARLs. Moreover, the effect of these laws is more pronounced for high-growth firms, firms with more stringent financial constraints, and firms relying on external financing, especially financing through special purpose vehicles (SPVs). These changes in asymmetric cost behavior are driven by economic incentives that improve firm performance.

Suggested Citation

  • Li, Tongxia & Lu, Chun & Xu, Lei, 2025. "Access to finance and cost stickiness: Evidence from anti-recharacterization laws," Advances in accounting, Elsevier, vol. 68(C).
  • Handle: RePEc:eee:advacc:v:68:y:2025:i:c:s0882611025000112
    DOI: 10.1016/j.adiac.2025.100816
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    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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