The Impact of Capital Structure on the Relationship between Cost Stickiness and Stock Price Crash Risk: An Applied Study on the Egyptian Listed Companies

Purpose: This study aims to investigate and test the relationship between Cost Stickiness and Stock Price Crash Risk in non-financial firms listed on the Egyptian Stock Exchange, taking into consideration the moderating role of Capital Structure. The study also seeks to analyze whether a firm's level of financial leverage significantly influences the nature of this relationship, employing multiple levels of statistical analysis, including baseline analysis and sensitivity tests, to provide a comprehensive interpretation of the accounting and market-related phenomena under investigation.    
Methodology and Design: The study relies on panel data analysis to estimate the statistical models that capture the relationship between the variables, using both fixed effects and random effects models, with the Hausman Test applied to determine the more appropriate model.
Two alternative proxies were employed to measure stock price crash risk:

Negative skewness of weekly stock returns (NCSKEW) for the baseline analysis.
Down-to-up volatility (DUVOL) for sensitivity testing.

Additionally, the sample was divided into two subsamples based on leverage level (high vs. low leverage firms), in order to test the moderating effect of capital structure on the main relationship.
Findings: The results of the baseline analysis indicate that cost stickiness has a positive and statistically significant impact on stock price crash risk. This effect is stronger among high-leverage firms, while it appears statistically insignificant among low-leverage firms.
In the sensitivity analysis, using the alternative crash risk proxy (DUVOL), the core results were confirmed: cost stickiness continues to exert a significant positive effect on crash risk, with the effect remaining more pronounced in firms with high financial leverage.
Originality / Value: Although prior literature has richly explored the impact of cost stickiness on financial performance and managerial decisions, few—if any—studies have examined its direct relationship to stock price crash risk, a key indicator of market efficiency and systemic risk.
Furthermore, while several studies have emphasized the relevance of capital structure in explaining market behavior, limited research—according to the best knowledge of the researcher—has addressed how capital structure moderates the effect of cost stickiness on crash risk.
 
This represents a notable research gap, and the current study provides a novel contribution to the accounting and finance literature by integrating behavioral cost dynamics with market-based risk indicators.