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Equity Governance, Free Cash Flow, and Expense Stickiness |
WANG Ming hu1,XI Yan qun3 |
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Abstract Expense stickiness is an important factor which affects firm’s performance, and is also an important driver of agency cost, but few studies focus on the causes why expense stickiness generates and influential factor of expense stickiness. In this article, through a model analysis, we argue that free cash flow is the basic condition of expense stickiness, and equity governance is a useful tool to control expense stickiness. Through an empirical research, we find that in China the nature and control right of the controlling shareholder greatly affects the expense stickiness, and free cash flow can also affect expense stickiness definitively. Thus, we should control free cash flow and improve equity governance to control firm expense stickiness.
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Received: 21 April 2011
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Corresponding Authors:
WANG Ming hu
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