“How Does the Visible Hand Shape Cost Behavior? Evidence from China” by Professor Zhaoyang GU
Professor Zhaoyang GU
Director, School of Accountancy
CUHK Business School
The Chinese University of Hong Kong
Banker and Byzalov (2014) find that China exhibits the highest degree of cost stickiness compared to 20 other economies. We hypothesize that to maintain social stability Chinese government has the incentive and ability to influence firms’ employment decisions, thus affecting the labor cost stickiness. We find that, consistent with our hypothesis, China’s state owned enterprises (SOEs) have a higher degree of labor cost stickiness than non-SOE’s, and SOEs with politically connected managers have a higher degree of labor cost stickiness than those without. Such effects are stronger in regions with weak institutions and more political intervention. The political factors have little impact on the stickiness of other costs.