Effect of Financial Restriction on Sticky Costs: Empirical Evidence from Brazil

Abstract

This research aimed to investigate the impact of financial constraint on asymmetric cost behavior in companies listed on B3 (Brazil). For that, a descriptive, documentary and quantitative study were developed with the use of multiple linear regression, totaling a sample of 834 observations. The results show that companies with and without financial restrictions present an asymmetrical behavior of costs, ie, the increase in total costs in the face of an increase in sales revenue is higher when compared to the reduction of costs due to a proportional reduction in the recipe. However, the findings have shown that financially constrained firms better adjust total costs to the company's situation and decreases in revenue. In other words, it can be seen that these companies make more drastic cuts in total expenses due to the reduction of sales revenue, however, increasing the asymmetry of costs. On the other hand, when the economy returns, it loses due to the low investment capacity for growth, because they are experiencing difficulties in obtaining resources. It is concluded that the behavior of costs is adapted to the conditions of companies that are financially constrained.The evidence found in the study contributes to creditors and regulators, who can support new financing policies and risk monitoring for companies with financial constraints, since they aim to adopt the asymmetry in costs due to a fall in revenue, which reveals that they seek exit from the financial situation, with a view to improving the company's overall capacity.