Debt maturity structure and cost stickiness. Issue 1 (23rd November 2020)

• Record Type: Journal Article
• Authors: Habib, Ahsan; Costa, Mabel D.
• Is Part Of: Journal of corporate accounting & finance. Volume 32:Issue 1(2021)
• Page Start: 78
• Page End: 89
• Publication Date: 2020-11-23
• Subjects: agency problems -- cost stickiness -- debt maturity -- free cash flows; Accounting -- Periodicals; Accounting -- Law and legislation -- United States -- Periodicals; Corporations -- United States -- Finance -- Periodicals; Corporations -- United States -- Accounting -- Periodicals; 657
• DOI: 10.1002/jcaf.22479
• Languages: English
• ISSNs: 1044-8136

Abstract

Abstract: 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.