Trade Credit and Cost Stickiness Focusing on the Agency Problem and Customer Concentration

Abstract

Understanding cost behavior in the case of sale changes and examining the factors effective on asymmetric cost behavior lead to the greater awareness of managers' motivations and decisions. The main purpose of this study is to investigate the relationship between trade credit and corporate cost stickiness as well as the moderating effect of agency problem and customer concentration on the relationship. The sample consists of 161 firms listed in Tehran Stock Exchange in a 7 years period from 2014 to 2020. Results show that trade credit as an external governance mechanism has a significant negative relation with cost stickiness. In addition, findings show that the agency problem strengthens the relationship between trade credit and corporate cost stickiness; however, customer concentration weakens that relationship. Our study contributes the cost management literature through identifying one of the potential factors that can reduce cost stickiness in companies.

Keywords

• trade credit
• cost stickiness
• agency problem
• customer concentration