Political uncertainty, officials’ characteristics heterogeneity and firm cost stickiness

Abstract

Taking the change of provincial leaders in 31 provincial administrative regions in China as the breakthrough point, we choose China’s A-share non-financial listed companies from 2008 to 2019 as a research sample to empirically test the impact mechanism of political uncertainty on firm cost stickiness. The study reveals that local companies will reduce their cost stickiness when officials’ replacement increases political uncertainty, and this cost decision is directly related to the heterogeneity of officials’ characteristics. After eliminating time and economic variables from political fluctuations, we discover that the political features of official change have a significant impact on cost stickiness both in the year before and after the official change. Furthermore, through a detailed examination of the three drivers of cost stickiness, we demonstrate that political uncertainty exacerbates managers’ pessimism and establish the path of management sentiment, excluding the drivers of adjustment costs and agency problems. This paper opens up the black box that political uncertainty affects firm cost stickiness by introducing the heterogeneity of officials’ characteristics into the study and presenting empirical evidence of political uncertainty and cost stickiness.