Asymmetric Cost Behavior and Non-Financial Firms' Risky Financial Investments
Using hand-collected data on non-financial firms’ financial portfolios, I examine how asymmetric cost behavior (or cost stickiness) affects risky financial investments. Sticky costs amplify the downward effect of sales decrease on profits because costs do not fall when sales decrease by as much as t...
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| Format: | Dissertation |
| Language: | English |
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ProQuest Dissertations & Theses
01-01-2024
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| Online Access: | Get full text |
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| Summary: | Using hand-collected data on non-financial firms’ financial portfolios, I examine how asymmetric cost behavior (or cost stickiness) affects risky financial investments. Sticky costs amplify the downward effect of sales decrease on profits because costs do not fall when sales decrease by as much as they rise when sales increase. I find that firms with sticky costs avoid risky financial investments because of expected liquidity needs and the trade-off between operating and financial risk. Oster’s delta and shock-based instrumental variable design address endogeneity concerns. For firms with sticky costs, investing in risky securities subdues non-financial investments and increases a firm’s risk exposure without creating shareholder value. |
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| ISBN: | 9798382593715 |