Confucian culture and cost stickiness

Abstract

Cultural features may exert significant impact on firm behaviour. Through a sample of listed A-share firms on the Shanghai and Shenzhen Stock Exchanges, we find that Confucian culture may significantly lower firms' cost stickiness. Our mechanism tests suggest that ideologies of self-discipline and prudence embedded in Confucian culture may mitigate agency issues as well as overestimation of firm earnings. Furthermore, such impact is more pronounced among firms of lower shareholding by institutional investors or of weak internal control, which suggests that Confucian culture may help rectify the imperfection of corporate governance. Lower cost stickiness may also reduce firm risk.