This study investigates the implications of country-level aggregate sales decline on firms’ cost stickiness and explores how legal systems and cultural dimensions moderate this relationship.
We analyze an international sample of firms from 39 countries over the 2003–2022 period using regression analysis to examine the relationship between aggregate sales decline and firms’ cost behavior.
Our findings reveal that country-level aggregate sales decline reduces firms’ cost stickiness, in contrast to the extensively documented positive association between firm-level sales decline and cost stickiness. This reduction in cost stickiness is statistically and economically significant, regardless of whether firms individually experience consecutive sales declines. Moreover, the impact is significantly stronger for firms in common-law countries, countries with long-term orientation and countries with higher levels of individualism.
The study is the first multinational study to examine the effect of aggregate sales decline on cost stickiness. The study also offers insights into the role of legal systems and cultural dimensions in moderating this relationship.
