Better safe than sorry? The effect of asymmetric cost management on firm resilience in manufacturing firms

Abstract

Purpose

Global business practices show that during periods of demand volatility, manufacturing firms often engage in asymmetric cost management (ACM), a behavior in which costs increase faster than they decrease when demand decreases by the same amount. However, whether managing asymmetric costs will enhance or impede firm resilience remains an open question. We aim to investigate the impact of ACM on firm resilience and its boundary conditions.

Design/methodology/approach

Using unbalanced panel data of 2,273 Chinese manufacturing listed companies from 2002 to 2021, we conduct an empirical analysis using a double fixed effects model.

Findings

Our findings reveal that ACM has a negative effect on firm resilience. This suggests that in coping with external environmental fluctuations, ACM fails to fulfill its expected role effectively. Instead, it manifests as a severe agency problem affecting firm resilience. Further, we find that managerial myopia and digitalization diminish the negative effect, while customer instability exacerbates it.

Originality/value

This study contributes to the literature on the organizational resilience of manufacturing firms by providing an in-depth understanding of cost management and emphasizing the need to consider agency issues carefully when managing asymmetric costs.

Citation

Du, K., Jia, F. and Chen, L. (2024), "Better safe than sorry? The effect of asymmetric cost management on firm resilience in manufacturing firms", Industrial Management & Data Systems, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IMDS-05-2024-0425