The Impact of Cost Stickiness on Firm Value: The Moderating Role of Free Cash Flow

Document Type : Research Paper

Authors

Accounting, Management and Accounting, Shahid Beheshti University, Tehran, Iran

Abstract

Cost stickiness refers to the asymmetric behavior of costs in response to changes in activity levels, such that costs do not vary linearly with changes in activity. According to the resource adjustment cost theory, cost stickiness occurs because managers tend to retain excess resources. This phenomenon reduces the level, persistence, and predictability of profitability, while increasing investment risk. Free cash flows further enhance managers’ ability to create and maintain excess resources. The purpose of this study is to examine the relationship between cost stickiness and firm value, considering the moderating role of free cash flows. This research is descriptive–correlational in nature. To achieve the research objective, theoretical foundations and prior studies were first reviewed using a library method. Then, using the audited financial statements of 129 firms listed on the Tehran Stock Exchange - selected through systematic screening - for the period 2013–2024 the study variables were measured, and the hypotheses were tested using the generalized least squares (GLS) regression method. The results indicate a significant negative relationship between cost stickiness and firm value. Moreover, high levels of free cash flows were found to strengthen this relationship. The findings of this study can assist managers in optimizing cost management and help investors to more accurately evaluate firm value and the associated risks.

Keywords

Main Subjects

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Journal of Accounting Advances
Volume 17, Issue 2
February 2025

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History

  • Receive Date: 04 October 2024
  • Revise Date: 27 October 2025
  • Accept Date: 28 October 2025

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