This paper offers the first empirical evidence that firms with sticker cost enjoy a higher cost of debt financing proxied by at-issue yield spreads of bond offerings Our finding is consistent with the argument that greater decrease in profits due to sticky costs when activ-ity level falls increases the cash flow volatility thereby resulting in higher default risk The results also indicate that the impact of cost stickiness is greater in situations where there is greater market uncertainty about a firm’s future Since debt financing is an important source of external financing for publicly traded firms the results have important implica-tions on our understanding of the economic consequences of asymmetric behavior of costs
Date of Award | 2014 Aug 21 |
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Original language | English |
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Supervisor | Ting-Kai Chou (Supervisor) |
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Cost Stickiness and the Cost of Debt
芷璘, 王. (Author). 2014 Aug 21
Student thesis: Master's Thesis