Does Cost Stickiness Affect Financial Risk?
As discussed in Chapter 4, asymmetric cost behavior can be interpreted as an investment in a risky project. Thus, cost stickiness can be thought as part of a firm’s overall business risk defined as “the risk associated with the level and stability of operating cash flow”. The business risk of a firm is exposed to market risk, i.e., a potential loss from unfavorable market movements, usually estimated as risk from a stock market index such as the S&P 500 in the US market or EURO STOXX 50 in the European market.
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