Browsing by Author "Costa MD"

Now showing 1 - 4 of 4
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    Cost stickiness and firm value
    (Springer-Verlag GmbH, 2023-08-14) Costa MD; Habib A; Verbeeten F
    In this paper we explore the association between cost stickiness and firm value. Using a large sample of U.S. data, we find a robust negative relationship between cost stickiness and firm value. We then explore whether the resource adjustment, managerial expectations, and agency theories of cost stickiness affect the negative relation and find support for the managerial expectation and agency theories. Furthermore, we find evidence that the detrimental impact of cost stickiness on firm value is mediated partially through the cost of equity and cash flow channels. Further investigation suggests that the adverse effects of cost stickiness on firm value is stronger in the presence of high information asymmetry. We enrich the cost management literature by integrating cost stickiness with corporate finance.
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    Financial constraints and asymmetric cost behavior
    (Springer-Verlag GmbH, 2021-03-01) Costa MD; Habib A; Bhuiyan MBU
    This study investigates the association between financial constraints and cost asymmetry. Using a large U.S. sample of firms from 1976 to 2016, we find that financially constrained firms exhibit less cost asymmetry. However, such low cost asymmetry is more pronounced for SG&A cost category compared to operating cost category. Our results remain generally consistent across various specifications of financial constraints measures and various asymmetric cost behavior measures. We explore three contextual settings that might affect the association differentially, namely, the future value-creating potential of SG&A expense setting, the investment opportunities setting, and the earnings management setting. In addition, we find evidence that financial constraint leads to lower cost asymmetry, even when managers have received optimistic signals about future sales. As resources drive the costs of a business, and financial constraints affect resource availability, studying the cost behavior of constrained firms makes a valuable contribution to the existing cost asymmetry literature.
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    Local creative culture and audit fees
    (Elsevier Ltd on behalf of British Accounting Association, 2023-03-13) Costa MD; Habib A
    This paper examines the association between local creative culture and audit fees. Using a large, unbalanced panel data of listed US firms between 2004 and 2018, we find evidence that firms headquartered in US counties with high creative culture tend to pay higher audit fees than firms headquartered in counties with low creative culture. We also find that such firms tend to have longer audit report lag and are subject to more shareholder litigation. Cross-sectional tests show that real earnings management, managerial risk-taking propensity, and external corporate governance environment moderate the positive association between creative culture and audit fees. The positive association between local creative culture and audit fees remains robust to controlling for endogeneity concerns. Our study contributes to the emerging literature on local creative culture by providing evidence that local creative culture encourages managers and employees to undertake risky initiatives, thereby increasing audit risks.
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    Oil Price Volatility, Organization Capital, and Firm Performance
    (Pompea College of Business, University of New Haven, 2022-11) Kamal JB; Costa MD; Habib A
    We examine the relationship between oil price volatility and firm performance, and the moderating role of organization capital on this relationship. Using U.S. firm-level data during the period of 1986-2017, our analysis reveals several key findings. Consistent with the real option theory, we find that oil price volatility negatively affects firm performance. However, this adverse effect of oil price volatility is reduced for firms with high levels of organization capital. Interestingly, this moderating effect of organization capital is more pronounced for firms with large cash holdings. Overall, our findings substantiate the idea that firms with high levels of organization capital can hedge oil price related volatilities effectively. Findings from several robustness tests support our key results.