Business Strategy, Short-Term Debt, and Cost Stickiness

Abstract

This research delves into the dynamics that underlie the relationship between changes in a company's sales and its cost structure. It also explores the influence of short-term debt, often associated with sales, on a phenomenon known as cost stickiness. Furthermore, we examine the roles of product market competition and various business strategies in shaping these interactions. We used financial data from 153 companies listed on the Tehran Stock Exchange from 2015 to 2021 to conduct a rigorous regression analysis to unearth significant insights. Our findings reveal that short-term debt serves as a mechanism for companies to effectively manage their financial obligations with lenders and creditors, and it is inversely correlated with cost stickiness. Moreover, our results shed light on how the impact of short-term debt on cost stickiness varies in response to the competitive nature of the product market and a company's chosen business strategy. Specifically, when companies adopt a "prospector strategy" to explore new markets and expand their product offerings, the negative association between short-term debt and cost stickiness weakens. In a broader context, our study contributes to comprehending cost stickiness and carries practical implications for industry professionals and future scholarly pursuits.