Does the Ownership of Domestic and Foreign State Affect Asymmetric Cost Behavior?

Abstract

The ownership structure of a company affects cost behavior through the governance structure and management''s decision-making process. This study examined how the ownership of states affect cost behavior from the perspective of domestic and foreign state ownership by using 13,387 financial data and ownership observations from 2008 to 2016 in the United States. Based on the cost asymmetry model, we found that the higher the state’s ownership, the more asymmetric cost behavior in terms of selling, general, and administrative and operating costs. However, firms with foreign state ownership shows less asymmetric cost behavior comparing to firms with domestic state ownership. This study is the first paper to analyze the effect of state ownership on cost behavior, classified into domestic and foreign, and the relationship between the state ownership and cost behavior from the viewpoint of the agency problem, budget maximization tendency, compensation of managers and insufficient monitoring. This study provides implications for policy makers to consider these characteristics of state ownership and origins of the differences between domestic and foreign state ownership, and supplements the structure to overcome the limitations.