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Debt maturity structure and cost stickiness
Author(s) -
Habib Ahsan,
Costa Mabel D.
Publication year - 2021
Publication title -
journal of corporate accounting and finance
Language(s) - English
Resource type - Journals
eISSN - 1097-0053
pISSN - 1044-8136
DOI - 10.1002/jcaf.22479
Subject(s) - maturity (psychological) , agency cost , incentive , debt , earnings , earnings management , economics , compensation (psychology) , monetary economics , cash , empirical evidence , business , microeconomics , finance , psychology , developmental psychology , corporate governance , philosophy , epistemology , psychoanalysis , shareholder
This paper investigates the association between debt maturity structure and cost stickiness. One view in the cost stickiness literature suggests that managers deliberately continue to expand resources for their own private benefit, despite a decrease in the activity level. We examine whether short‐maturity debt constrains such opportunistic cost stickiness. We find evidence supporting this hypothesis. We further document that availability of free cash flows, earnings management incentive, and the structure of executive compensation all exacerbate the agency problem‐induced cost stickiness, but that short‐maturity debt constrains those sources of cost stickiness. We contribute to the scant body of empirical research that explores the potential factors that could attenuate cost stickiness.