Ownership Influence on Cost Elasticity

This study examines whether family ownership, a prevalent ownership type, is associated with cost elasticity, and the mechanism through which this effect occurs. The contribution is threefold. First, we find higher cost elasticity in family firms than in non-family firms. Second, results from five different empirical settings suggest that risk aversion of family shareholders motivates them to increase cost elasticity. Third, additional tests indicate that family firms focus on selling, general, and administrative costs to adjust their cost structures and modify both their assets and labor costs to achieve high cost elasticity