The Moderating Effect of the Main Bank System in Japan on the Association between Financial Risk and Cost Behavior

39 Pages Posted: 17 Aug 2016

See all articles by Tomohisa Kitada

Tomohisa Kitada

Kindai University

Mami Koyama

Osaka City University - Graduate School of Business

Takehisa Kajiwara

Kobe University - Graduate School of Business Administration

Date Written: August 14, 2016

Abstract

This study examines the relationship between financial risk and cost behavior both theoretically and empirically. We suggest that financial risk will affect the degree of discretion of managerial resource adjustment decisions by its impacts on financial flexibility and the cost of capital. As expected, our results show that financial risk increases the degree of cost anti-stickiness in the case of a prior activity decrease. On the other hand, financial risk appears to have no statistically significant influence on cost behavior in the case of a prior activity increase. This result is not consistent with our prediction. This study also examines the moderating effect of the close relationships between firms and banks on the association between financial risk and asymmetric cost behavior by using the data of the main bank system in Japan. The results of the study show that the close ties with main banks will mitigate the adverse impacts of financial risk and enlarge the degree of managerial discretion in adjusting resources in firms with high financial risk.

Keywords: Cost Stickiness, Cost Behavior, Financial Risk, Main Bank System

JEL Classification: M41, D24, D81, G32, G33

Suggested Citation

Kitada, Tomohisa and Koyama, Mami and Kajiwara, Takehisa, The Moderating Effect of the Main Bank System in Japan on the Association between Financial Risk and Cost Behavior (August 14, 2016). Available at SSRN: https://ssrn.com/abstract=2823246 or http://dx.doi.org/10.2139/ssrn.2823246

Tomohisa Kitada (Contact Author)

Kindai University ( email )

Higashiosaka, Osaka
Japan

Mami Koyama

Osaka City University - Graduate School of Business ( email )

3-3-138 Sugimoto, Sumiyoshi
Osaka 558-8585
Japan

Takehisa Kajiwara

Kobe University - Graduate School of Business Administration ( email )

2-1,Rokkodai,, Nada-ku
Kobe, 657-8501
Japan
+81-78-803-6988 (Phone)
+81-78-803-6988 (Fax)

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