Journal
JOURNAL OF ACCOUNTING & ECONOMICS
Volume 55, Issue 1, Pages 111-127Publisher
ELSEVIER
DOI: 10.1016/j.jacceco.2012.08.003
Keywords
Sticky costs; Employment protection legislation; Labor adjustment costs
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Central to the economic theory of sticky costs is the proposition that managers consider adjustment costs when changing resource levels. We test this proposition using employment protection legislation (EPL) provisions in different countries as a proxy for labor adjustment costs. Using a large sample of firms in 19 OECD countries during 1990-2008, we find that the degree of cost stickiness at the firm level varies with the strictness of the country-level EPL provisions. This finding supports the theory that cost stickiness reflects the deliberate resource commitment decisions of managers in the presence of adjustment costs. (C) 2012 Elsevier B.V. All rights reserved.
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