COVID-19 and Cost Stickiness: the Impact of the Pandemic on Resource Management Decisions

Abstract

This study examines the impact of the COVID-19 pandemic on corporate executives' cost management decisions during revenue declines. Managers often cut costs in response to poor performance, but this approach during a downturn can lead to higher costs when sales recover. Such decisions depend on management's expectations about the upcoming market. At the start of the pandemic, firms had to assess the potential severity and duration of COVID-19 and manage resources accordingly. This research explores (1) the management's perception of the pandemic as a short- or long-term event and (2) changes in cost behaviour before and after COVID-19, especially regarding executives' uncertainty perceptions. Pre-COVID-19 findings indicate that firms displayed cost stickiness, aligning with previous studies that demonstrate costs decrease less during sales declines than they increase during sales rises. Post-COVID-19, this stickiness weakened, with costs adjusting more symmetrically to revenue changes. These results highlight how executives' expectations and perceptions of uncertainty during the global crisis affected firm resource management, leading to changes in asymmetric cost behaviours.