The impact of cost stickiness on investment efficiency: the moderating role of financial reporting quality

Purpose This study aims to explore the relationship between cost stickiness and investment efficiency, with a particular focus on the moderating role of financial reporting quality (FRQ). Design/methodology/approach The analysis is based on panel data regression using 2,356 firm-year observations from 178 companies listed on the Egyptian Exchange between 2009 and 2023. The study investigates how asymmetric cost behavior affects investment decisions in the context of an emerging market. Findings The results indicate that cost stickiness significantly reduces investment efficiency, consistent with agency theory, which attributes this effect to managerial inertia and resource misallocation. High-quality financial reporting mitigates this negative impact by enhancing transparency, although it does not entirely offset inefficiencies – particularly in settings with weak institutional governance. Research limitations/implications As the study focuses solely on Egypt, the generalizability of the results is limited. Future research could benefit from cross-country comparisons, additional moderating variables and the application of dynamic panel models. Practical implications The findings underscore the need for integrated reforms that enhance financial reporting practices, corporate governance structures and regulatory oversight to improve investment efficiency in emerging markets. Originality/value This study offers novel insights by linking cost stickiness to investment efficiency and demonstrating how FRQ moderates this relationship. It contributes to the literature by addressing a gap in emerging market research and offering strategic implications for cost behavior and governance.