Effect of language on cost stickiness: Evidence from dialect consistency between chairpersons and general managers

This study examines the impact of dialect consistency and cultural convergence between chairpersons and general managers on cost stickiness, using a sample of Chinese A-share manufacturing listed firms in Shanghai and Shenzhen from 2016 to 2021. Dialect consistency is measured by matching executives’ birthplaces with dialect classifications from the Language Atlas of China, distinguishing three levels: dialect area, sub-dialect, and dialect piece. Using an empirical model based on a modified marginality principle, we find that dialect consistency significantly mitigates cost stickiness, with the effect becoming more pronounced as dialect proximity increases. These results remain robust after addressing endogeneity through two-way clustering (firm × year), individual fixed effects, and a novel instrumental variable based on a historical regional mobility index. Heterogeneity analysis reveals that the mitigating effect is more significant in private enterprises, firms with higher managerial ownership, and those located in first-tier and new first-tier cities. Mediation analysis confirms agency cost (AgC) as the primary channel: dialect consistency strengthens executive trust and goal alignment, reducing AgCs and ultimately alleviating cost stickiness. This study contributes to the micro-level literature bridging linguistic culture and corporate financial behavior, offering new insights into how informal institutions shape cost management in emerging markets.