Banking competition and cost stickiness

Abstract

In this paper, we examine how banking competition affects non-financial firms' cost stickiness. Using the Interstate Banking and Branching Efficiency Act (IBBEA) as an exogenous shock to banking competition, we find that banking competition increases non-financial firms' cost stickiness. In addition, we find that banking competition increases cost stickiness of non-financial firms by intensifying competitive pressure and improving the availability of credit. Overall, this paper contributes to existing literature by documenting the effect of banking competition on cost behavior and the determinants of cost stickiness.