2016-14
Financial Risk, Main Bank System, and Cost Behavior:
Empirical Evidence from Japan

Mami Koyama Tomohisa Kitada Takehisa Kajiwara

Financial Risk, Main Bank System, and Cost Behavior:
Empirical Evidence from Japan

Mami Koyama*
Tomohisa Kitada
Takehisa Kajiwara

Graduate School of Business Administration
Kobe University, Kobe, JAPAN
December 1, 2016_________________________*Corresponding author. 2-1, Rokkodai, Nada, Kobe, JAPAN 657-8501; +81 78 803 6988;
151b007b@stu.kobe-u.ac.jp1

ABSTRACTWe examine the relationship between financial risk and cost behavior, both theoretically andempirically. We suggest that financial risk will affect the degree of discretion in managerial
resource adjustment decisions by its impacts on financial flexibility. As expected, our results
show that financial risk increases the degree of cost anti-stickiness in the case of a prior activity
decrease. On the other hand, financial risk appears to have no statistically significant influence
on cost behavior in the case of a prior activity increase. This result is not consistent with our
prediction. We also examine the moderating effect of the close relationships between firms andbanks on the association between financial risk and asymmetric cost behavior using data on themain bank system in Japan. Consistent with our prediction, our results show that firms’ close ties
with the main banks mitigate the adverse impacts of financial risk and allow managers to adjust
resources flexibly in response to sales changes, even if the firms face high financial risk.
JEL Classification: M41, D24, D81, G32, G33
Keywords: Cost Stickiness, Cost Behavior, Financial Risk, Main Bank System21.

Introduction
In recent years, the volume of literature on cost behavior based on archival data has grownsignificantly (e.g., Anderson et al. 2003; Balakrishnan et al. 2004; Banker et al. 2013; Banker et
al. 2014a; Banker and Chen 2006; Cannon 2014; Chen et al. 2012; Kama and Weiss 2013; Weiss2010). The traditional textbook model explains that costs change mechanically in proportion to
the level of activity volume. In contrast, recent studies have documented asymmetric costbehavior, in which the magnitude of the changes in costs in response to changes in activity
volume depends on the direction of the activity volume changes due to managers’ deliberateresource adjustment decisions in order to maximize the value of firms (e.g., Anderson et al.
2003; Banker et al. 2014a; Weiss 2010). Since the seminal work by Anderson et al. (2003),
studies have shown the existence of cost stickiness, where costs decrease less in response to
decreases in activity volume than they increase for equivalent increases in activity volume.
Several studies document an empirical phenomenon of cost anti-stickiness, where decreases in
activity volume result in greater changes in costs than do equivalent increases in activity volume,
under specific conditions (e.g., Banker et al. 2014a; Weiss 2010). The determinants ofasymmetric cost behavior, such as managerial incentives of earnings management, capitalutilization, core competence, the direction of prior sales, and corporate governance, have been
investigated (e.g., Balakrishnan et al. 2004; Banker et al. 2014a; Chen et al. 2012). Throughthese investigations, prior researches argue that asymmetric cost behavior is a consequence ofdeliberate managerial resource adjustment decisions in response to sales changes.
In this study, we focus on the impacts of financial risk on the degree of managerial
discretion in resource adjustment decisions. While prior studies have not focused on the degree3

of managerial discretion in resource adjustment decisions, it is one of an important determinantof managers’ deliberate resource adjustment decisions. We show that managers cannot adjust
resources deliberately in response to sales changes because they have limited opportunities to doso under certain conditions, even if they want to make such adjustments. Financial risk is definedas the potential future inability of a firm to cover its financial obligations (Holzhacker et al.
2015). Financial risk includes the possibility of a firm defaulting on its debts in future (defaultrisk) and the variability of a firm’s profit associated with its liabilities (financial leverage). We
predict that financial risk will reduce the degree of discretion in managerial resource adjustment
decisions through its impact on financial flexibility.
We also focus on the roles of the close relationships between industrial firms and banks inmanagerial resource adjustment decisions. Traditionally, large firms in Japan have relied heavily
on direct bank finance, rather than equity or bond issues, and have maintained a close
relationship with a particular bank, called a “main bank” (e.g., Aoki and Patrick 1995; Hoshi et al.
1990; Hoshi 1996). We predict that such ties with main banks will mitigate the impacts offinancial risk on the degree of discretion in resource adjustment decisions, and allow managers toadjust resources flexibly in response to sales changes, even if they face high financial risk.
Understanding the roles of financial risk on asymmetric cost behavior is also importantfrom the point of view of risk management. Since managerial resource adjustment decisions
affect the cost structure of a firm, they will also affect the risk of the firm. Therefore, managers
take risk into account when they make resource adjustment decisions. Despite theinterdependency between risk management and resource adjustment decisions, with a few
exceptions, previous studies have not paid sufficient attention to this issue.
We examine the relationship between financial risk and asymmetric cost behavior based4

on publicly available financial data of Japanese firms. We predict that financial risk restricts
financial flexibility by increasing the cost of capital and causing a debt overhang problem, whichalters managerial resource adjustment decisions and determines cost behavior. Consistent withthis prediction, our results indicate that financial risk increases the degree of cost anti-stickinessin the case of a prior activity decrease. On the other hand, financial risk appears to have noinfluence on cost behavior in the case of a prior activity increase. We also examine themoderating effect of the close relationships between firms and banks on the association between
financial risk and asymmetric cost behavior using data on the main bank system in Japan. We
predict that firms’ close ties with main banks will mitigate the impacts of financial risk on
financial flexibility, as well as increase the degree of managerial discretion when adjusting
resources in firms with high financial risk. Our result generally supports this prediction.
We make several contributions to the growing body of literature on cost behavior. First,
we emphasize the roles of the degree of managerial discretion in resource adjustment decisions,and financial risk as the determinant of such discretion. Prior studies have not paid sufficientattention to the roles of the degree of managerial discretion in resource adjustment decisions that
affect the pattern of asymmetric cost behavior. Our results indicate that the degree of managerial
discretion in resource adjustments varies according to the conditions managers face and affects
the pattern of asymmetric cost behavior. Second, we show the roles of bank–firm relationships inmanagerial resource adjustment decisions. We present empirical evidence showing that close ties
with main banks mitigate the impact of financial risk on the degree of managerial discretion inresource adjustments and allow managers to adjust resources deliberately, even if they face highfinancial risk. Thus, we provide a deeper understanding of the roles of corporate financing andbank–firm relationships in managerial resource adjustment decisions.
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The remainder of this paper is structured as follows. In section 2, we develop the theory
and formulate the hypotheses. In section 3, we describe the data and the empirical model. In
subsequent sections, we present and discuss the empirical results. The final section concludes thepaper.

2.

Literature Review and Hypotheses

2.1.

Asymmetric Cost Behavior
Since the seminal work by Anderson et al. (2003), numerous studies have documented

how many costs decrease less in response to sales decreases than they rise for equivalent sales
increases, which is known as cost stickiness. The cost stickiness mechanism is explained in termsof managers’ prospects for future activity, in which resource adjustment costs and retention costsof unused resources play an important role (Anderson et al. 2003). Resource adjustment costs arethose required to adjust resources in response to changes in activity volume. These costs include
those of dismissing excess employees because of a downturn in activity volume, employing
additional workers to meet future activity increases, and so on. On the other hand, the retention
costs of unused resources result from not cutting slack resources after a reduction in activity
volume, but retaining them until the activity volume recovers. If the resource adjustment costs
exceed the retention costs of unused resources, managers will retain unused resources, even if theactivity volume decreases. This deliberate managerial decision makes costs sticky. In contrast, if
resource adjustment costs fall below the retention costs of unused resources, managers willremove those unused resources.
Following Anderson et al. (2003), a substantial number of studies have shown that cost
stickiness is prevalent in various contexts, and that the degree of cost stickiness is dependent on
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various factors, such as capital utilization, core competence, and corporate governance (e.g.,
Balakrishnan et al. 2004; Chen et al. 2012; Kama and Weiss 2013). Several studies also
document an empirical phenomenon of cost anti-stickiness, in which decreases in activity
volume result in greater changes to costs than do equivalent increases in activity volume (e.g.,
Banker et al. 2014a; Weiss 2010). Banker et al. (2014a) complement and refine the theoreticaldevelopment of asymmetric cost behavior in Anderson et al. (2003).
We follow the argument of Banker et al. (2014a) that cost behavior is affected by the
direction of prior activity volume, which determines the amount of unused resources carried overfrom the prior period and managerial expectations for future activity volume. 1 If activity
increased in period t - 1 (relative to period t - 2), the amount of unused resources carried over
into the current period t will be very low. Even if unused resources had been carried over fromperiod t - 2, managers would consume them to deal with the increase in activity volume during
period t - 1, and would not secure more resources than required. Therefore, if activity increasedin period t - 1, the resources carried over into the current period will be minimal. Then, if theactivity increases in the current period, managers will increase resources in order to meet theresource requirements.2 This is because if managers do not acquire these resources, they will be
unable to respond to an increase in demand and, consequently, will miss an opportunity for profit.
On the other hand, if activity decreases in the current period, costs will not decrease
proportionately to activity decreases. This is because managers will likely retain some unused
resources between the resource requirement and the maximum resource level at a certain activity

While Banker et al. (2014a) use sales as a proxy for activity, we develop our argument
without using a proxy for activity.
2 Resource requirements refer to the minimum resources technically necessary to meet acertain activity volume.
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volume.3 Therefore, in the case of a prior activity increase, costs will be sticky in the current
period. Figure 1 shows this scenario.
If activity decreased in the previous period t - 1, then managers retained unused resourcesin that period, which are then carried over into the current period t. If activity increases in thecurrent period, costs will not increase significantly because managers can utilize the unused
resources to deal with the increased activity. In contrast, if activity decreases further in thecurrent period, managers will reduce resources that exceed the acceptable amount of unused
resources. Therefore, in the case of a prior activity decrease, costs will be anti-sticky (see Figure
2).
The direction of changes in prior activity also affect managers’ prospects for future
activity volumes. Since prior activity volume is good predictor of future activity volume,
managers tend to believe that the future volume is more likely to increase (decrease) when they
face a prior activity volume increase (decrease). Therefore, an increase (decrease) in the previous
period’s activity volume causes managerial optimism (pessimism) with regard to future activity
volume.
When managers are optimistic about the future activity volume following a prior activity
increase, they are more likely to retain unused resources in the event of a current decrease andare more willing to acquire additional resources in the event of a current increase. This is because
optimistic managers tend to believe there is a high probability of a future activity volume
increase, and that any current decrease will not continue for long. Therefore, optimistic managers
will judge that a current resource reduction will mean higher future resource reacquisition costs,
While Banker et al. (2014a) do not state it explicitly, we assume that managers determine
firms’ resource levels at their discretion, within the range of the minimum required
resource level to the sum of the minimum resource level and the acceptable slack resources.
Therefore, we see Figures 1 and 2 as extreme cases of asymmetric cost behavior.
83and that the current acquisition of extra resources will mean saving on future acquisition costs. In
conclusion, optimistic prospects of future activity following a prior sales increase strengthen the
degree of cost stickiness.
On the other hand, when managers are pessimistic about future activity volume following
an activity decrease, they are likely to cut unused resources in the event of a current decrease,and hesitate to acquire additional resources in the event of a current increase. This is because
pessimistic managers will anticipate needing to reduce resources further in the near future.
Therefore, compared with optimistic managers, pessimistic managers reduce costs further in
response to a current activity decrease. In conclusion, pessimistic prospects of future activity
following a sales decrease reinforce the degree of cost anti-stickiness.
As in Banker et al. (2014a), we summarize these hypotheses as follows:

H1a: Conditional on a prior activity increase, costs in the current period aresticky, on average.
H1b: Conditional on a prior activity decrease, costs in the current period areanti-sticky, on average.

(Insert Figure 1 here)(Insert Figure 2 here)

2.2.

Financial Risk and Cost Behavior
9The explanation of the patterns of cost behavior by Banker et al. (2014a) imply thatmanagers determine firms’ resource levels at their discretion within the range of the minimum
required resource level to the sum of the minimum resource level and the acceptable slack
resources. Therefore, this range is the room in which a manager can adjust resources at his/her
discretion. If the difference is small, the degree of managerial resource adjustments will be
constrained. On the other hand, a larger range for discretional adjustments will allow managers
to change their resource level more flexibly in response to an activity volume change.
Thus, we suggest that this range will depend on a variety of conditions that firms face.
Since the minimum required resource level is determined technologically by a firm’s production
function, the difference is determined by the acceptable slack resources. We explore the effect offinancial risk on the level of acceptable slack resources. Since firms with high financial risk do
not have sufficient internal reserves, their resource adjustment decisions are significantly affectedby the availability of outside funds. However, high financial risk makes it more difficult to get
outside funds due to an increase in the cost of capital, and debt overhang problem. Since
creditors bearing higher risk require larger repayments, the cost of capital for firms with highfinancial risk will increase to reflect their creditors’ expectations. In addition, an increase infinancial risk causes a debt overhang problem (Myers, 1977). These effects mean that firms withhigh financial risk will not be able to adjust resources flexibly. Consequently, an increase infinancial risk decreases the degree of managerial discretion, restricting their financial flexibility.
In Figures 3 and 4, this effect is shown as the shift in acceptable unused resource levels
downwards (from AS1 to AS2).
Through the above effect, financial risk will alleviate (strengthen) the degree of cost
stickiness (cost anti-stickiness). Let us consider the case of a prior activity increase. In this case,10the amount of resources carried over from the prior period is low. Then, managers must decideon resource levels, over and above the requirements for the current period, in response tochanges in activity volume. Without the effects of financial risk, costs will be sticky, because
managers are more likely to retain unused resources for future activity increases in the event of acurrent decrease, and are willing to increase resources in the event of a current activity increase.
For firms with high financial risk, the acceptable amount of unused resources will decrease
because of the restriction on financial flexibility, irrespective of the direction of a change incurrent activity. Higher resource retention costs will restrict the amount of unused resources thatmanagers retain for a future activity increase. Furthermore, higher resource acquisition costs
mean managers will hesitate to obtain additional unused resources. These effects will constrain
the firm’s resource levels close to its minimum resource requirements at a certain activity
volume. In Figure 3, these effects are shown in the change of resource adjustment decisions from
𝑅𝑖𝑖𝑎 to 𝑅𝑖𝑖ℎ , and from 𝑅𝑖𝑑𝑎 to 𝑅𝑖𝑑ℎ . Hence, we predict that increases in financial risk will
reduce the degree of cost stickiness following a prior activity increase (see Figure 3).

H2a: Conditional on a prior activity increase, the degree of costs stickiness inthe current period has a negative association with financial risk.

(Insert Figure 3 here)

Next, we consider the case of a prior activity decrease. In this case, managers retain
unused resources close to the acceptable amount at the beginning of the current period. Without
the effects of financial risk, costs will be anti-sticky because managers will reduce unused11resources in the event of a current activity decrease, and will use unused resources in a current
activity increase. As discussed above, in general, high financial risk will reduce the acceptableamount of unused resources, irrespective of the direction of changes in current activity. In theevent of a current activity increase, managers with high financial risk will avoid securing excess
resources. Instead, they will use unused resources carried over from the previous period, because
high financial risk makes additional resource acquisition more difficult. Moreover, in the eventof a current activity decrease, managers will reduce the amount of unused resources retained for
future activity increases. In Figure 4, these effects are shown as a change in resource adjustment
decisions from 𝑅𝑑𝑖𝑎 to 𝑅𝑑𝑖ℎ , and from 𝑅𝑑𝑑𝑎 to 𝑅𝑑𝑑ℎ . Thus, we predict that high financial risk
will increase the degree of cost anti-stickiness (see Figure 4).

H2b: Conditional on a prior activity decrease, the degree of cost anti-stickinessin the current period has a positive association with financial risk.

(Insert Figure 4 here)

2.3.

The Roles of the Main Bank System
Traditionally, large firms in Japan have relied heavily on direct bank finance rather

than on equity or bond issues, and have maintained a close relationship with a particular bank,called a “main bank.” Prior studies show that the main bank system in Japan has several positive
advantages for corporate finance. For example, main banks mitigate informational asymmetry
problems between lenders and borrowers by producing information on client firms, which theyshare with other lenders and investors. Main banks also serve as insurance for clients in financial
12

distress by providing funds, a lower interest ratio, or intervening in their management policies4(e.g., Aoki and Patrick 1995; Hoshi et al. 1990; Hoshi 1996). We expect that an increase infinancial risk will decrease the degree of managerial discretion in making resource adjustments
by increasing the cost of capital and restricting financial flexibility. However, we also expect that
their close ties with main banks will allow managers to adjust resources more flexibly inresponse to sales changes, even if they face high financial risk.
First, close ties with main banks reduce informational asymmetry between lenders andborrowers. Since the main banks hold the major payment settlement account of their client firms,
they can monitor clients’ business activities carefully through their account (Aoki 1994). Mainbanks also send key bank personnel to the top management teams in client firms to monitor theiractivities (Hoshi et al. 1990). These close ties with client firms allow the main banks to generatevaluable information about their clients’ business activities. Since main banks tend to share suchinformation with other lenders and investors, the degree of information asymmetry between
borrowers and lenders decreases, preventing the cost of capital of the client firms fromincreasing, even if they face high financial risk.
Second, strict corporate monitoring activities by main banks discourage moral hazards in
However, the main bank system in Japan also has drawbacks. For example, by examining
the effects of bank–firm relationships on firm performance in Japan, Weinstein and Yafeh(1998) show that when access to capital markets is limited, the close ties with main banks
increase the availability of capital to borrowing firms, but do not lead to higher profitability
or growth. They argue that the slow growth rates of bank clients suggest that banks
discourage firms from investing in risky, but profitable projects. In addition, because of
their long-term relationships, main banks are more likely to respond to renegotiation offersfrom clients in financial distress in the expectation of recovering their loans in the longterm (Boot 2000). In some cases, recent studies have argued that main banks give rise to“zombie” firms, which are kept alive by bank loans, even though they are less likely toreconstruct management. Kobayashi and Osano (2011) show that the threat of withdrawal
of non-main banks forces main banks to perform efficiently in handling troubled loans. In
other words, main banks do not necessarily give rise to zombie firms (Caballero et al. 2008;
Hoshi and Kashyap 2004; Peek and Rosengren 2005).
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4

client firms. If firms behave opportunistically, investors and lenders will require a high risk
premium, which increases the cost of capital. However, because the strict monitoring by mainbanks prevents client firms from behaving opportunistically, the cost of capital for such firms
will not increase.5
Third, the main banks also provide a form of insurance for client firms in financial distressand for other lenders. When firms are in financial distress, their lenders are likely to stop
providing financing and will make financial constraints more severe. However, since main banks
are likely to rescue such clients in order to maintain their reputation as main banks, other lenders
will not stop providing financing. Therefore, by having a relationship with a main bank, firms
can provide a signal of a low possibility of bankruptcy to the financial market. This signal also
alleviates increases in the cost of capital for firms with main banks.
Fourth, by providing additional cash or by applying lower interest rates for their client
firms in financial distress, the main banks alleviate the financial constraints caused by increased
financial risk. Therefore, close ties with main banks allow firms with high financial risk tomaintain unused resources in preparation for future activity increases, even if they face highfinancial risk.
For the above-mentioned reasons, we predict that the association between financial risk
and cost behavior will be weaker in firms with close ties to main banks.

H3: The associations between financial risk and cost behavior will be weakerin firms with close ties to main banks.
Client firms of a main bank may have other lenders, called non-main banks. Becausemonitoring activities in Japan are delegated to the main banks, they are responsible formonitoring their clients. Therefore, Japanese banks are interdependent with non-mainbanks in terms of monitoring their borrowers (Sheard 1994).
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3.
3.1

Empirical Models and Sample Data
The Empirical Model and Variables
We employ the empirical model developed by Banker et al. (2014a) to examine H1a andH1b. We use sales as a proxy for activity; selling, general, and administrative (SG&A) costs as aproxy for costs; and the debt ratio and simple analysis of failure (SAF) value as proxies forfinancial risk. The SAF value measures the risk of bankruptcy based on the SAF2002 model(Shirata 2003). Other models have certain predictive powers for the data used to formulate themodels. In contrast, the SAF2002 model considers the relation between real managerial behavior
and financial figures, which enables us to capture the behavior of managers facing bankruptcy.
The SAF2002 model is given as follows:
𝑆𝐴𝐹𝑖,𝑡 = 0.01036 ∙ 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑡𝑜 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 𝑖,𝑡 +0.02682 ∙ 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑏𝑒𝑓𝑜𝑟𝑒 𝑡𝑎𝑥 𝑡𝑜 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠𝑖,𝑡 +0.06610 ∙ 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑃𝑒𝑟𝑖𝑜𝑑𝑖,𝑡 −0.02368 ∙ 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 𝑡𝑜 𝑆𝑎𝑙𝑒𝑠𝑖,𝑡 + 0.70773.
If the SAF value is below 0.70, the bankruptcy risk is high (Shirata 2003). That is, a lower SAF
value means a greater risk of bankruptcy. Conversely, a higher SAF value means a lower
bankruptcy risk. The empirical model of Banker et al. (2014a) is expressed in Eq. (1):∆ ln 𝑆𝐺𝐴𝑖,𝑡 = 𝛽0 + 𝐼𝑖,𝑡−1 (𝛽1𝑃𝐼𝑛𝑐𝑟 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 + 𝛽2𝑃𝐼𝑛𝑐𝑟 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 ) +𝐷𝑖,𝑡−1 (𝛽1𝑃𝐷𝑒𝑐𝑟 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 + 𝛽2𝑃𝐷𝑒𝑐𝑟 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 ) + 𝜀𝑖,𝑡 .

15

(1)

Here, ∆ ln 𝑆𝐺𝐴𝑖,𝑡 is the difference between firm i’s SG&A costs in year t relative to year𝑡 − 1; ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 is the difference between firm i’s sales in year t relative to year 𝑡 − 1; 𝐷𝑖,𝑡
is a dummy variable that takes 1 if firm i’s sales decrease in year t relative to year 𝑡 − 1, and 0
otherwise; 𝐷𝑖,𝑡−1 (𝐼𝑖,𝑡−1 ) is a dummy variable that takes 1 if firm i’s sales increase in year 𝑡 − 1
relative to 𝑡 − 2, and 0 otherwise; and 𝜀𝑖,𝑡 is an error term.
The coefficient of 𝛽1𝑃𝐼𝑛𝑐𝑟 expresses the proportionate increase in SG&A costs for a 1%
increase in sales in the current period in the case of a prior sales increase; 𝛽1𝑃𝐼𝑛𝑐𝑟 + 𝛽2𝑃𝐼𝑛𝑐𝑟
expresses the proportionate decrease in SG&A costs for a 1% decrease in sales in the current
period in the case of a prior sales increase; and 𝛽1𝑃𝐷𝑒𝑐𝑟 and 𝛽2𝑃𝐷𝑒𝑐𝑟 can be interpreted in thesame way, respectively, in the case of a prior sales decrease. Therefore, H1a and H1b imply that
𝛽2𝑃𝐼𝑛𝑐𝑟 is positive and 𝛽2𝑃𝐷𝑒𝑐𝑟 is negative, which indicate cost stickiness and anti-stickiness,
respectively.
Eq. (2) shows an empirical model that examines the influence of financial risk on costbehavior.

∆ ln 𝑆𝐺𝐴𝑖,𝑡 = 𝛽0 + 𝐼𝑖,𝑡−1 (𝛽1𝑃𝐼𝑛𝑐𝑟 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 + 𝛽2𝑃𝐼𝑛𝑐𝑟 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 +𝛿1𝑃𝐼𝑛𝑐𝑟 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡 +𝛿2𝑃𝐼𝑛𝑐𝑟 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡 ) +𝐷𝑖,𝑡−1 (𝛽1𝑃𝐷𝑒𝑐𝑟 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 +𝛽2𝑃𝐷𝑒𝑐𝑟 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 + 𝛿1𝑃𝐷𝑒𝑐𝑟 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡 +𝛿2𝑃𝐷𝑒𝑐𝑟 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡 ) + 𝛽3 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐴𝑆𝐼𝑁𝑇𝑖,𝑡 +𝛽4 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐸𝑀𝑃𝐼𝑁𝑇𝑖,𝑡 + 𝜀𝑖,𝑡 .

(2)Here, 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡 is a variable denoting the log-ratio of total liabilities to the equity of16

firm i in year t, or the SAF value of firm i in year t; 𝐴𝑆𝐼𝑁𝑇𝑖,𝑡 is a control variable denoting the
log-ratio of the total assets of firm i to sales in year t; and 𝐸𝑀𝑃𝐼𝑁𝑇𝑖,𝑡 is also a control variable,
denoting the log-ratio of the number of regular employees of firm i to sales in year t. Allremaining variables are the same as those in Eq. (1).
If 𝛿1𝑃𝐼𝑛𝑐𝑟 + 𝛿2𝑃𝐼𝑛𝑐𝑟 or 𝛿1𝑃𝐷𝑒𝑐𝑟 + 𝛿2𝑃𝐷𝑒𝑐𝑟 is 0, financial risk has no influence on costbehavior. If 𝛿1𝑃𝐼𝑛𝑐𝑟 + 𝛿2𝑃𝐼𝑛𝑐𝑟 is positive (negative), the degree of stickiness of SG&A costs inthe current period following a prior sales increase has been alleviated (strengthened). On theother hand, if 𝛿1𝑃𝐷𝑒𝑐𝑟 + 𝛿2𝑃𝐷𝑒𝑐𝑟 is positive (negative), the degree of anti-stickiness of SG&A
costs in the current period following a prior sales decrease has strengthened (alleviated). We test
H2a and H2b using these coefficients.
We further divide our sample into two sub-samples based on the value of the main bankratio (𝑀𝐵𝑅𝐴𝑇𝐼𝑂𝑖,𝑡 ). We measure 𝑀𝐵𝑅𝐴𝑇𝐼𝑂𝑖,𝑡 as the fraction of the loan amounts from firm
𝑖’s main bank to total assets. One sub-sample includes firms with a main bank ratio that is higher
than the median value in the full sample. The other sub-sample contains the remaining firms. To
examine H3, we estimate Eq. (2) using these two sub-samples.

3.2

Sample and Descriptive Statistics
We use financial data collected from Nikkei NEEDS-Financial QUEST 2.0. We

extracted the financial data for the period 2000–2014 from the consolidated financial statementsof Japanese listed firms (in all industries other than banking, insurance, and stockbrokers) that
follow Japanese accounting standards. The data also include the financial data of delisted firms.
We require firms to have valid sales data for years t to t - 2, valid SG&A cost data for years t to t
- 1, and valid debt ratio data for year t. We removed observations if a firm’s accounting period17was not 12 months, its financial year did not begin in March, its SG&A costs exceeded sales, or
its total liabilities were not positive. We winsorize the data at the top and bottom 1 percent. The
final sample comprised 19,447 firm-year observations.
Table 1 presents the descriptive statistics. The mean (median) sales value is 187,931(52,804) million yen. The mean (median) value of SG&A costs is 29,929 (7,841) million yen.
The mean (median) ratio of SG&A costs to sales is 19.5% (16.1%). Finally, the mean (median)debt ratio, a measure of financial risk, is 0.191 (0.176), while the mean (median) SAF value,another measure of financial risk, is 0.947 (0.955).

(Insert Table 1 here)

4.

Empirical Results
The left-hand column in Table 2 shows the estimated coefficients of Eq. (1). As

expected, 𝛽1𝑃𝐼𝑛𝑐𝑟 is 0.669 (p < .001) and 𝛽2𝑃𝐼𝑛𝑐𝑟 is -0.402 (p < .001), supporting H1a. The
SG&A costs in the current period are sticky following a prior sales increase. In addition, 𝛽1𝑃𝐷𝑒𝑐𝑟
is 0.401 (p < .001) and 𝛽2𝑃𝐷𝑒𝑐𝑟 is 0.104 (p < .001), supporting H1b. The SG&A costs in thecurrent period exhibit anti-stickiness in the case of a prior sales decrease. These results are
consistent with those of Banker et al. (2014a).

(Insert Table 2 here)

The central column in Table 2 shows the estimates of Eq. (2), using debt ratios as aproxy for financial risk. Eq. (2) extends Eq. (1) in order to examine the effect that financial risk
18

has on cost behavior. As with Eq. (1), the results indicate that SG&A costs are sticky in the caseof a prior sales increase and, in contrast, anti-sticky in the case of a prior sales decrease. In
addition, neither 𝛿1𝑃𝐼𝑛𝑐𝑟 nor 𝛿2𝑃𝐼𝑛𝑐𝑟 are statistically significant, suggesting that financial risk has
no effect on SG&A cost changes in the case of a prior sales increase. Therefore, H2a is notsupported. While 𝛿1𝑃𝐷𝑒𝑐𝑟 is not statistically significant, 𝛿2𝑃𝐷𝑒𝑐𝑟 is 0.065 (p < .05). Thus,
financial risk does strengthen the degree of anti-stickiness following a prior sales decrease.
Consequently, H2b is supported.
The right-hand column in Table 2 shows the estimates of Eq. (2), using SAF values as aproxy for financial risk. As with Eq. (1), these results exhibit stickiness in the case of a priorsales increase and anti-stickiness in the case of a prior sales decrease. In addition, neither 𝛿1𝑃𝐼𝑛𝑐𝑟
nor 𝛿2𝑃𝐼𝑛𝑐𝑟 are statistically significant, suggesting that financial risk has no effect on SG&A costchanges following a prior sales increase. This result is consistent with the estimation of Eq. (2),which use debt ratios to measure financial risk. Furthermore, 𝛿1𝑃𝐷𝑒𝑐𝑟 is 0.127 (p < .001) and𝛿2𝑃𝐷𝑒𝑐𝑟 is -0.141 (p < .001), indicating that a lower financial risk means a greater alleviation of
the anti-stickiness in the current period following a prior sales decrease. In other words, greater
financial risk means greater anti-stickiness in the current period, following a prior sales decrease.
Hence, both results for Eq. (2), using either the debt ratio or SAF values, support H2b.
Table 3 shows the estimates of Eq. (2) using the two sub-samples, which indicate firms
with high and low main bank ratios. In the sample with a high main bank ratio, financial risk,
proxied by either the debt ratio or SAF value, has no influence on cost behavior. On the other
hand, in the sample with low main bank ratios, in the case of using the debt ratio as a proxy for
financial risk, 𝛿2𝑃𝐷𝑒𝑐𝑟 is 0.095 (p < .05). Furthermore, when using the SAF value as a proxy for
financial risk, 𝛿1𝑃𝐷𝑒𝑐𝑟 is 0.265 (p < 0.05) and 𝛿2𝑃𝐷𝑒𝑐𝑟 is -0.285 (p < 0.001). These results
19suggest that in the sample with low main bank ratios, an increase in financial risk strengthens thedegree of cost anti-stickiness after a prior sales decrease. Therefore, consistent with H3, weconclude that the association between financial risk and cost behavior is weaker in firms withclose ties to a main bank after a prior sales decrease.

(Insert Table3 here)

Furthermore, as a robustness check, we estimate Eq. (2) using the two sub-samples, which
are divided based on the median of the ratio of the loan amount from firm 𝑖’s main bank to thetotal loan amount. Table 4 shows the estimates of (2) using the sub-samples. The results in Table
4 are similar to those in Table 3.

(Insert Table 4 here)

5.

Discussion
Consistent with the findings of Banker et al. (2014a), our results show that the direction ofchanges in activity in the previous period influence the cost behavior. More specifically, theamount of unused resources carried over from the prior period and the managers’ prospects for
future activity, determined by the direction of the activity volume changes in the previous period,
have an important influence on managers’ discretionary resource adjustment decisions.
The results of the study indicate that financial risk has some influence on cost behavior.
We predict that since financial risk influences cost behavior by reducing the degree ofmanagerial discretion through its impacts on financial flexibility, firms with higher (lower)
20

financial risk weaken (strengthen) the degree of cost stickiness (anti-stickiness). Consistent with
our prediction, our results indicate that when activity decreases in both the previous and current
periods, managers are willing to reduce resources. This result supports H2b, suggesting that
financial risk strengthens the degree of cost anti-stickiness by reducing the acceptable amount of
unused resources.6
In contrast, in the case of a prior activity increase, there is no statistically significant
relationship between financial risk and cost behavior and, thus, H2a is not supported. One of thereasons for this result might be the effect of managerial overconfidence on resource adjustment
decisions. People are often susceptible to overconfidence when predicting the future (Weinstein1980). Overconfidence refers to a tendency to overestimate one’s own ability, underestimate theinfluence of other factors on an outcome, overestimate one’s own predictive powers, andunderestimate variance of an outcome (Chen et al. 2013). Managerial overconfidence will affectjudgment and decision-making. In the finance literature, managers with a higher debt ratio are
more likely to be overconfident about their future (Malmendier et al. 2011). However, theaccounting literature has shown that overconfident top managers are more optimistic about future
earnings forecasts (Hilary and Hsu 2011; Libby and Rennekamp 2012). Furthermore, Chen et al.
(2013) demonstrated that cost behavior becomes sticky in the case of overconfident CEOs,
because they will not reduce unused resources, even in the face of activity decreases. According

6However, there was no statistically significant influence of financial risk on managerial

resource adjustment decisions when activity decreased in the previous period andincreases in the current period. This may be because managers become pessimistic towards
future activity after the activity decreased during the previous period. Pessimistic
managers will not proactively acquire resources in response to increased activity in thisperiod (Banker et al. 2014a). Therefore, irrespective of the degree of financial risk, when
the previous period’s activity decreases and the current period’s activity increases,
managers avoid acquiring new resources, instead using unused resources carried over fromthe previous period.
21

to Banker et al. (2014a), following a prior activity increase, managers will be optimistic about
future activity. Therefore, we can assume that a prior activity increase further strengthens
managerial optimism on future activity in firms with high financial risk. If optimism about future
activity increases, any increases in activity volume in the current period will cause a rapid
expansion in resources, while decreases in activity volume in the current period leads managers
to retain unused resources. These effects may strengthen the degree of cost stickiness. Therefore,
in the case of a prior activity increase, higher financial risk can both strengthen and weaken the
degree of cost stickiness in the current period. We infer that these two effects of financial risk on
cost behavior may offset each other, and fail to find evidence supporting H2a.
Here, we found the moderating effects of the close relationships with main banks on theassociation between financial risk and asymmetric cost behavior. Specifically, our results showthat for firms with a low main bank ratio, financial risk strengthens the degree of costanti-stickiness in the case of a prior sales decrease. However, in firms with a high main bankratio, the increase in financial risk is not associated with cost behavior. While previous studies
have not paid adequate attention to the impacts of bank–firm relationships on cost behavior, theresults of our study suggest that bank loans from main banks have a significant impact on theassociation between financial risk and cost behavior by alleviating the adverse effects offinancial risk on the degree of managerial discretion in resource adjustment decisions.

6.

Conclusion
We examined the association between financial risk and cost behavior and the moderating

effects of the impacts of bank–firm relationships on this association. We proposed theoreticalpredictions about the effect of financial risk on cost behavior, and presented empirical evidence
22using financial data collected from Japanese firms. Our results indicate that financial risk affects
the degree of managers’ discretion in resource adjustment decisions through its impacts onfinancial flexibility. Our results also show that close ties with main banks have a significant
impact on the association between financial risk and cost behavior by allowing managers toadjust resources more flexibly in response to sales changes. In summary, our study shows that
although the increase in financial risk will reduce the degree of managerial discretion in resource
adjustment decisions, the close ties with main banks will mitigate this adverse impact offinancial risk.
Our study contributes to the existing body of literature as follows. First, we extend theliterature on asymmetric cost behavior. We demonstrated empirical evidence showing how
financial risk affects the degree of managerial discretion in resource adjustment decisions, anddetermined the pattern of asymmetric cost behavior. By focusing on the roles of financial risk,
we provide deeper insight into the relationship between risk and resource adjustment decisions.
As already noted, the managerial decisions of resource retention, reduction, and acquisition in
response to changes in activity volume ultimately influence cost structures. Therefore, managers
need to adjust their resources, taking risks into account. Our results show that, in firms with highfinancial risk, the degree of cost anti-stickiness is strengthened in the case of a prior activity
decrease. Cost anti-stickiness in the case of a prior activity decrease implies that the degree ofcost elasticity in response to activity changes is greater when the activity decreases rather thanincreases in the current period. Therefore, our analysis suggests that when activity decreases inboth the previous and current periods, managers with high financial risk choose a more elastic
cost structure by significantly reducing unused resources. Thus, managers’ resources adjustment
decisions are interdependent of risk management. Future research needs to explore the23interdependency between managers’ resources adjustment decisions and risk management.
Second, we help to explain the relationship between cost behavior and bank–firm
relationships. While prior studies on banking have shown various potential roles of the close ties
with main banks, it has not discussed their implications for cost behavior. We shed light on new
aspects of roles of long-term relationships between main banks and their clients in terms of costbehavior. Previous studies on relational banking argue that there are various types of relationalbanking other than the Japanese main bank system (Berger and Udel 2002). Future researchshould explore the roles of other types of relational banking on cost behavior.
The limitations of our study have to be considered when interpreting our results. First,
while we use the debt ratio and the SAF values as proxies for financial risk, there are othermeasures of financial risk, such as those of Ohlson (1980) and Altman (1968). Second, we wereunable to find a statistically significant relationship between financial risk and cost behavior
when activity increased in the previous period. As discussed above, we infer that one of thereasons is the contradictory effects of financial risk on cost behavior. Future research candistinguish between these two effects, which would deepen our understanding of the influence offinancial risk on cost behavior. Third, our study implies that risk management and managerial
resource adjustment decisions in response to changes in activity volume have an interdependent
relationship. Future research can explore these associations between cost behavior and a variety
of risks, such as those stemming from diversification or global supply chains.

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28

Appendix. Variable Definitions
Variable
Definition∆ ln 𝑆𝐺𝐴𝑖,𝑡 Difference between firm i’s SG&A in period 𝑡 − 1 and period t∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 Difference between firm i’s sales in period 𝑡 − 1 and period t
A dummy variable that takes the value 1 when firm i’s sales decrease
𝐷𝑖,𝑡between period 𝑡 − 1 and period t , and 0 otherwise
A dummy variable that takes the value 1 when firm i’s sales decrease
𝐷𝑖,𝑡−1from period 𝑡 − 2 to 𝑡 − 1, and 0 otherwise
A dummy variable that takes the value 1 when firm i’s sales increase𝐼𝑖,𝑡−1from period 𝑡 − 2 to 𝑡 − 1, and 0 otherwise
𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡 ;Log-ratio of total liabilities to equity value of firm i in year t
𝑑𝑒𝑏𝑡 𝑟𝑎𝑡𝑖𝑜
𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡 ;SAF value of firm i in year t
SAF value
𝐴𝑆𝐼𝑁𝑇𝑖,𝑡Log-ratio of total assets of firm i to sales in year t
𝐸𝑀𝑃𝐼𝑁𝑇𝑖,𝑡 Log-ratio of number of regular employees of firm i to sales in year t.

29

FIGURE 1
Cost Stickiness Conditional on a Prior Activity Increase
Resources(Costs)resource requirements

resource requirements＋
acceptable slack

Activitiest(decrease)

Activitiest-1

Activitiest(increase)30

FIGURE 2
Cost Anti-Stickiness Conditional on a Prior Activity Decrease
Resources(Costs)resource requirements

resource requirements＋
acceptable slack

Activitiest(decrease)

Activitiest-1

Activitiest(increase)

31

FIGURE 3
Effect of Financial Risk on Cost Behavior Conditional on a Prior Activity Increase

32

FIGURE 4
Effect of Financial Risk on Cost Behavior Conditional on a Prior Activity Decrease

33

TABLE 1
Descriptive Statistics
Variables

MeanStandard
Deviation

Lower
Quartile

MedianUpper Quartile

𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 , Yen million
𝑆𝐺𝐴𝑖,𝑡 , Yen million
𝑆𝐺𝐴𝑖,𝑡 ∕ 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡(Debt Ratio)
𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡(SAF Value)
𝑀𝐵𝑅𝐴𝑇𝐼𝑂𝑖,𝑡
𝐸𝑀𝑃𝐼𝑁𝑇𝑖,𝑡

187,931
29,92919.5

383,577
61,542
13.7

21,2963,262
10.0

52,804
7,841
16.1

160,762
24,958
24.1

0.191

1.050

-0.496

0.176

0.843

0.947

0.346

0.749

0.955

1.172

0.178
-3.761

0.140
0.786

0.063
-4.2340.148-3.7040.261-3.23834

TABLE 2
Estimates for Eq. (1) and (2) Using Full Sample
Coeffici
ents

Variables

𝛽1𝑃𝐼𝑛𝑐𝑟𝐼𝑖,𝑡−1 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡𝛽2𝑃𝐼𝑛𝑐𝑟𝐼𝑖,𝑡−1 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡𝛿1𝑃𝐼𝑛𝑐𝑟𝐼𝑖,𝑡−1 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡𝛿2𝑃𝐼𝑛𝑐𝑟𝐼𝑖,𝑡−1 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡𝛽1𝑃𝐷𝑒𝑐𝑟𝐷𝑖,𝑡−1 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡𝛽2𝑃𝐷𝑒𝑐𝑟𝐷𝑖,𝑡−1 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡𝛿1𝑃𝐷𝑒𝑐𝑟𝐷𝑖,𝑡−1 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡𝛿2𝑃𝐷𝑒𝑐𝑟𝐷𝑖,𝑡−1 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡𝛽3∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐴𝑆𝐼𝑁𝑇𝑖,𝑡𝛽4∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐸𝑀𝑃𝐼𝑁𝑇𝑖,𝑡(1)0.669***(0.018)-0.402***(0.027)0.401***(0.025)0.104***(0.027)N
Adjusted R2
AIC

19,4470.432-43,308

Estimates(2): Debt
Ratio(2): SAF
Value

0.920***(0.048)-0.409***(0.027)-0.013(0.011)0.024(0.016)0.650***(0.060)0.072*(0.034)-0.002(0.021)
0.065*(0.029)-0.048*(0.022)0.062***(0.012)
19,4470.440-43,5590.880***(0.072)-0.370***(0.054)0.026(0.042)-0.047(0.050)0.543***(0.080)0.192***(0.051)0.127***(0.035)-0.141***(0.036)-0.031(0.020)0.060***(0.013)
17,9240.441-40,897***p<.001，**p<.01，*p<.05. () Indicates standard error. A two-way cluster-robust standard error t-test was undertaken on the two
primary factors of firms and financial years in order to confirm the significance of the estimated factors.

35

TABLE 3
Estimates for Eq. (2) Using Sub-Samples on the Basis of the Fraction of Loan Amount from
Main Bank to Total Assets
Estimates
CoefficientsVariables

𝛽1𝑃𝐼𝑛𝑐𝑟𝐼𝑖,𝑡−1 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡𝛽2𝑃𝐼𝑛𝑐𝑟𝐼𝑖,𝑡−1 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡𝛿1𝑃𝐼𝑛𝑐𝑟𝐼𝑖,𝑡−1 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡𝛿2𝑃𝐼𝑛𝑐𝑟𝐼𝑖,𝑡−1 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡𝛽1𝑃𝐷𝑒𝑐𝑟𝐷𝑖,𝑡−1 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡𝛽2𝑃𝐷𝑒𝑐𝑟𝐷𝑖,𝑡−1 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡𝛿1𝑃𝐷𝑒𝑐𝑟𝐷𝑖,𝑡−1 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡𝛿2𝑃𝐷𝑒𝑐𝑟𝐷𝑖,𝑡−1 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡𝛽3∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐴𝑆𝐼𝑁𝑇𝑖,𝑡𝛽4∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐸𝑀𝑃𝐼𝑁𝑇𝑖,𝑡nAdjusted R2
AICHigh Main Bank Ratio

Low Main Bank Ratio

Debt Ratio

SAF

Debt Ratio

SAF

0.920***(0.077)-0.489***(0.042)-0.017(0.025)0.043(0.042)0.594***(0.088)0.100(0.065)0.056(0.037)0.010(0.051)-0.053(0.032)0.055**(0.018)7729
0.410-161180.860***(0.067)-0.502***(0.072)0.014(0.019)0.066(0.103)0.540***(0.091)
0.057(0.057)0.088***(0.025)0.065(0.085)-0.006(0.038)0.045**(0.017)7404
0.432-16093

1.073***(0.068)-0.422***(0.043)0.019(0.017)-0.043(0.049)0.785***(0.074)0.053(0.045)-0.060(0.040)0.095*(0.045)-0.070***(0.016)0.105***(0.016)7729
0.434-18384

1.058***(0.097)-0.318***(0.092)0.026(0.049)-0.122(0.079)0.550***(0.131)0.294***(0.082)0.265**(0.091)-0.285***(0.079)-0.071***(0.018)0.106***(0.019)7499
0.438-18063***p<.001，**p<.01，*p<.05. () Indicates standard error. A two-way cluster-robust standard error t-test was undertaken on the two
primary factors of firms and financial years in order to confirm the significance of the estimated factors.

36

TABLE 4
Robustness Check: Estimates for Eq. (2) Using Sub-Samples on the Basis of the Fraction ofLoan Amount from Main Bank to Total Loan Amount
Estimates
CoefficientsVariables

𝛽1𝑃𝐼𝑛𝑐𝑟𝐼𝑖,𝑡−1 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡𝛽2𝑃𝐼𝑛𝑐𝑟𝐼𝑖,𝑡−1 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡𝛿1𝑃𝐼𝑛𝑐𝑟𝐼𝑖,𝑡−1 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡𝛿2𝑃𝐼𝑛𝑐𝑟𝐼𝑖,𝑡−1 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡𝛽1𝑃𝐷𝑒𝑐𝑟𝐷𝑖,𝑡−1 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡𝛽2𝑃𝐷𝑒𝑐𝑟𝐷𝑖,𝑡−1 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡𝛿1𝑃𝐷𝑒𝑐𝑟𝐷𝑖,𝑡−1 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡𝛿2𝑃𝐷𝑒𝑐𝑟𝐷𝑖,𝑡−1 𝐷𝑖,𝑡 ∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐹𝐼𝑁𝑅𝐼𝑆𝐾𝑖,𝑡𝛽3∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐴𝑆𝐼𝑁𝑇𝑖,𝑡𝛽4∆ ln 𝑆𝐴𝐿𝐸𝑆𝑖,𝑡 𝐸𝑀𝑃𝐼𝑁𝑇𝑖,𝑡nAdjusted R2
AICHigh Main Bank Ratio

Low Main Bank Ratio

Debt Ratio

SAF

Debt Ratio

SAF

1.040***(0.060)-0.428***(0.045)0.026(0.024)-0.026(0.049)0.787***(0.087)0.042(0.061)
0.006(0.047)0.060(0.054)-0.064**(0.022)0.090***(0.013)
7,729
0.427-16,578

1.021***(0.064)-0.435***(0.097)-0.035(0.065)-0.033(0.114)0.707***(0.132)0.121(0.097)0.054(0.082)-0.092(0.084)-0.047*(0.022)0.073***(0.013)7397
0.447-165570.915***(0.072)-0.443***(0.043)-0.041(0.027)0.064(0.033)0.615***(0.069)0.068(0.036)-0.016(0.027)0.116**(0.038)-0.058(0.031)
0.063***(0.016)
7,729
0.421-17,769

0.815***(0.124)-0.384***(0.127)0.082(0.088)-0.051(0.116)
0.344***(0.103)0.425***(0.085)0.300***(0.081)-0.425***(0.097)-0.038(0.035)0.058***(0.017)7506
0.421-17378***p<.001，**p<.01，*p<.05. () Indicates standard error. A two-way cluster-robust standard error t-test was undertaken on the two
primary factors of firms and financial years in order to confirm the significance of the estimated factors.

[2016.12.21 1226]

37