Cost stickiness: the role of Shariah compliance

Purpose This study aims to examine the cost stickiness among the firms listed in six Gulf Cooperation Council countries and whether the Shariah compliance status has an impact of on corporate cost behavior. Design/methodology/approach The present study uses a sample of non-financial firms listed in six Gulf Cooperation Council (GCC) countries to show that the Shariah compliance status of the firm affects its cost behavior. The study uses panel ordinary least squares and Heckman’s selection bias models to test the hypothesis of the study. Findings Firms classified as Shariah-compliant experience more cost stickiness compared to non-Shariah-compliant peers. This behavior is attributed to the restrictions on external financing options that Shariah corporates experience. Further analysis shows that the Islamic financial development of a country plays an important role in reducing the cost stickiness among the Shariah compliant firms. Originality/value The role of Shariah compliance in a firm’s cost structure is not well-explored in the current literature. This study is the first to investigate the relationship between cost stickiness and Shariah compliance. Further, the study establishes a nexus between cost stickiness, Shariah compliance and Islamic financial development.