The dilemma of hometown identity: Evidence from Chinese corporate cost behavior

Abstract

Using Chinese listed firms during the period from 2009 to 2018, we examine the effect of CEOs hometown identity on corporate cost behavior. We find that firms headquartered in the CEOs' hometown tend to have higher cost stickiness. The enhancing effect of local CEOs on cost stickiness is through the channel of increasing firm-wide adjustment costs and agency costs. Further evidence suggests that the incremental impact of local CEOs on cost stickiness is stronger in areas with high economic uncertainty and in firms with low ownership concentrations. Our study highlights the important role of hometown identity in corporate cost behavior, and suggest that local CEOs affect firm's internal resource management. It also enriches the existing literature on informal institution and corporate cost behavior.