Abstract
We examine the relationship between stakeholder orientation and cost stickiness (i.e., managerial asymmetric resource allocation decisions in response to firms’ activities change). Using the staggered adoption of the U.S. non-shareholder constituency statutes as a proxy for stakeholder orientation, we find strong empirical evidence of a positive relationship between stakeholder orientation and asymmetrical cost behavior. We further show that stakeholder-orientated managers retain slack resources when firms’ activity declines because of agency problems. Our results are robust to alternative model specifications, related sub-sample analysis and various measures of costs.
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