INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
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Cost Stickiness and Firm Performance: Evidence from
Manufacturing Enterprises in China
Fu Jinping*, Mary O’ Penetrante
Central Philippine University, Iloilo City, Philippines
*Corresponding Author
DOI: https://dx.doi.org/10.47772/IJRISS.2025.910000287
Received: 28 October 2025; Accepted: 03 November 2025; Published: 11 November 2025
ABSTRACT
Understanding how costs behave relative to changes in activity is crucial to improving managerial decision-
making and financial performance. This study investigated the relationship between cost stickiness and firm
performance among manufacturing enterprises in China. Cost stickiness occurs when costs rise more quickly
with an increase in sales but decrease more slowly when sales decline. Employing a descriptive–correlational
design, the study used secondary financial data from 50 listed manufacturing firms over a five-year period (2018–
2022). Results indicated that administrative, selling, and operating expenses exhibited significant stickiness
(ranging from β = –0.35 to –0.12), and cost stickiness was negatively correlated with profitability (ROA: r = –
0.47, p < 0.01). The findings highlight the importance of flexible cost management and managerial adaptability
for sustaining firm performance under volatile market conditions.
Keywords: Cost stickiness, firm performance, managerial behavior, manufacturing enterprises, China
INTRODUCTION
Cost behavior analysis has traditionally assumed a linear relationship between cost and activity level. However,
empirical evidence suggests that costs respond asymmetrically to sales fluctuations—a phenomenon known as
cost stickiness (Anderson, Banker, & Janakiraman, 2003). Costs increase more when sales rise than they decrease
when sales fall, primarily due to resource adjustment delays, labor hoarding, and managerial decisions that
prioritize long-term stability (Weiss, 2010; Calleja, Steliaros, & Thomas, 2006).
In China’s fast-evolving manufacturing sector, cost stickiness has become an important dimension of operational
efficiency and financial resilience. The country’s unique institutional environment—characterized by strong
state influence, rapid technological upgrading, and demand volatility—makes it imperative to understand how
cost behavior affects firm performance (Banker & Chen, 2006; Xu & Sim, 2017). Sticky costs may reflect both
managerial prudence in preserving resources and inefficiency in cost control (Dierynck, Landsman, & Renders,
2012).
While studies on cost stickiness are abundant in Western contexts, limited evidence exists for China’s
manufacturing firms, especially in the post-pandemic economic landscape. This study, therefore, aims to address
this research gap. Specifically, it investigates the degree of cost stickiness in different expense categories and its
relationship with firm performance. It hypothesizes that higher cost stickiness is associated with lower firm
performance.
METHODOLOGY
A descriptive–correlational design was employed to analyze the relationship between cost stickiness and firm
performance. The study utilized secondary financial data from the annual reports of 50 publicly listed
manufacturing companies in China covering five fiscal years (2018–2022). Firms were selected based on data
completeness and continuous listing during the study period.
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
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Dependent Variable: Firm performance, measured by Return on Assets (ROA) and Return on Equity (ROE).
Independent Variable: Cost stickiness, computed using the Anderson et al. (2003) model:
ln(Cost_t / Cost_{t−1}) = α + β * ln(Sales_t / Sales_{t−1}) + ε
where β < 1 when sales decrease indicates cost stickiness.
Descriptive statistics summarized cost ratios and performance indicators. Pearson correlation analysis was
conducted to test the relationships between cost stickiness coefficients and firm performance metrics. Statistical
significance was tested at the 0.05 level using SPSS version 27.
RESULTS AND DISCUSSION
Descriptive Statistics
The analysis revealed that cost stickiness coefficients ranged from –0.12 to –0.35 across expense categories,
suggesting moderate cost rigidity (Table 1). Selling and administrative expenses showed the highest stickiness,
implying that firms retain personnel and marketing expenditures despite revenue fluctuations—possibly to
preserve customer relationships and market share.
Table 1. Descriptive Summary of Cost Stickiness by Expense Category
Expense Category
Mean Coefficient
Std. Dev.
Interpretation
Selling Expenses
-0.35
0.09
Administrative Expenses
-0.28
0.1
Operating Expenses
-0.25
0.12
Production Overheads
-0.12
0.07
These results are consistent with previous research showing that firms in emerging markets often exhibit stickier
SG&A costs due to employment protection laws and long-term supplier contracts (Anderson et al., 2003; Chen,
Lu, & Sougiannis, 2012).
Correlation Between Cost Stickiness and Firm Performance
Pearson correlation analysis revealed a significant negative correlation between cost stickiness and firm
profitability (ROA: r = –0.47, p < 0.01; ROE: r = –0.39, p < 0.05) (Table 2).
Table 2. Correlation Between Cost Stickiness and Firm Performance
Variables
ROA
ROE
Significance
Cost Stickiness
-0.47**
-0.39*
Significant
*p < 0.05, **p < 0.01
These findings confirm that rigid cost structures limit managerial flexibility and profitability during downturns
(Weiss, 2010; Xu & Sim, 2017). However, moderate stickiness can also indicate strategic resource retention that
supports rapid recovery when demand rebounds (Calleja et al., 2006).
DISCUSSION
The results affirm the dual nature of cost stickiness: while excessive rigidity reduces profitability during
recessions, moderate stickiness may represent managerial foresight and investment in organizational capacity.
Chinese manufacturing firms, operating within a regulated labor environment and guided by state policies on
social stability, often maintain employment levels even in declining markets, leading to inherent cost asymmetry.
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
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CONCLUSION AND RECOMMENDATIONS
The study concludes that cost stickiness exists among Chinese manufacturing enterprises and that higher degrees
of stickiness negatively affect firm performance. Selling and administrative expenses are the most rigid cost
components.
To improve financial resilience, firms should:
1. Implement cost-flexibility strategies, including variable compensation systems and flexible sourcing.
2. Integrate cost monitoring tools into management accounting systems to identify sticky patterns early.
3. Encourage data-driven decision-making to balance short-term efficiency and long-term competitiveness.
4. Conduct benchmarking analyses to compare cost behavior across sectors and market conditions.
These practices will help firms transform cost rigidity into adaptive capability, enhancing overall performance
under fluctuating market conditions.
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