Author(s): Jeong-Ho Koo, Daecheon Yang
The literature on managerial accounting documents that cost stickiness is asymmetric cost reduction not responding to demand declines, which is driven by empire-building behaviour undesirable for shareholders. We posit that cost stickiness is likely to be rampant around Initial Public Offering (IPO) firms, particularly in an emerging IPO market that the corporate governance structure weakens. This paper focuses on Korea's KOSDAQ market where IPOs have been frequent during recent decades because of the rapid growth of information technology and bio- industries. By using a sample of 14,424 firm-year observations from 2002 to 2016 in Korea's KOSDAQ market, we explore whether IPO issuers aggravate the degree of cost stickiness after the offering in comparison with their peer groups. Our results suggest that the cost stickiness of post-IPO firms is greater than that of non-IPO firms.