Abstract:

This paper examines whether a firm's level of cost stickiness is associated with its sustainability performance. We posit that the managerial incentives regarding the cost strategy and sustainability performance strategy are interdependent. To create firm value, management has incentives to adopt cost management practices which align the cost stickiness strategy with economic sustainability performance (ESP) and with environmental, social, and governance (ESG) sustainability performance. Using a sample of 5,565 firm-year observations during 1992-2013,we find that a firm's level of cost stickiness is positively associated with both its ESP and ESG sustainability performance. Moreover, we find that the association between a firm's level of cost stickiness and ESP is moderated by ESG sustainability performance. Finally, we find that the relation between cost stickiness and ESG sustainability performance is more pronounced for governance and social dimensions of non-financial sustainability performance. The results are consistent with the view that management tends to retain scarce resources when expecting improvements in overall sustainability performance. Our results present new evidence to understand how management integrates cost management strategies with various dimensions of sustainability performance decisions and thus provide policy, practical, and research implications.