Political connections, election years and cost stickiness: evidence from Indonesia

Purpose: Political uncertainty arguably affects managers’ resource adjustment decisions, like preserving or releasing unutilized resources when sales decline. Such resource adjustment decisions will affect cost stickiness. Accordingly, this study aims to analyze the effects of political connections and election years on cost stickiness. Political connections are predicted to increase cost stickiness because of firms’ greater reliance on the government and the presence of politicians who utilize firms’ resources to meet their political interests. Further, the authors predict that election years decrease cost stickiness because managers are less optimistic about future sales due to greater political uncertainty. Design/methodology/approach: This study uses Indonesian listed nonfinancial firms in 2014–2023 as the research data, generating 4,086 firm-year observations as the final sample. It uses regression analysis to test the data. Findings: This study finds that firms exhibit cost anti-stickiness behavior, reducing committed resources in response to declining sales. The results also indicate that politically connected firms exhibit lower cost anti-stickiness (greater cost stickiness) than nonpolitically connected ones. Firms’ political connections enable politicians to require firms to incur greater labor costs by increasing or retaining employees for political support. Further, firms exhibit higher cost anti-stickiness (lower cost stickiness) during election years than nonelection years because firms face greater political uncertainty that erodes managerial optimism. Consequently, firms release resources and hold only barely sufficient resources. Originality/value: This study documented that sociopolitical factors (political connections and election years) affect managers’ resource-related decisions. Particularly in Indonesia, when the political conditions changed during the reform era, numerous business owners joined the parliament. This led to many firms relying on political connections to run the business.