Cost Stickiness of Private and Public Firms

This paper extends prior literature on cost behavior by providing evidence of whether and how access to public financing affects the degree of SG&A cost stickiness. Based on a comprehensive dataset covering both public and private firms in Korea, we document that cost stickiness is in general greater in private firms than it is in public firms. Mediation analyses reveal that demand uncertainty mainly accounts for the difference in cost stickiness between private and public firms. Our findings imply that public firms better address uncertainty by diversifying idiosyncratic risk in the capital market than private firms do, which results in greater asymmetry in SG&A costs for private firms. Overall, we present evidence that access to equity financing influences operations and hence, affects the cost structure of a firm.