IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v247y2025ics0165176524006050.html
   My bibliography  Save this article

Asymmetric cost behavior and financial distress

Author

Listed:
  • Ahemed, Agha Mureed
  • Iqbal, Umer
  • Atif, Mian Muhammad

Abstract

In this study, we investigate the effect of asymmetric cost behavior (ACB) on financial distress. In ACB, managers’ deliberate decision to retain idle resources creates an inflexible cost structure, which leads to financial distress. Using a sample of 107,021 firm-year observations from 12,850 U.S. listed non-financial firms over the period from 1987 to 2020, our findings reveal a positive relationship between ACB and financial distress. This relationship is driven by managerial optimism and overconfidence, as theorized in behavioral finance and the management optimism hypothesis. These results contribute to the growing understanding of how cognitive biases impact corporate financial decisions, particularly in firms facing financial distress, and underscore the importance of effective cost management in reducing the risks associated with ACB.

Suggested Citation

  • Ahemed, Agha Mureed & Iqbal, Umer & Atif, Mian Muhammad, 2025. "Asymmetric cost behavior and financial distress," Economics Letters, Elsevier, vol. 247(C).
    • Handle: RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176524006050
    DOI: 10.1016/j.econlet.2024.112121
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165176524006050
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econlet.2024.112121?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176524006050. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.