ABSTRACT This paper investigates how managerial career concerns, shaped by external employment opportunities, influence asymmetric cost behavior. Prior research highlights that executives' labor market prospects significantly affect their decision‐making, particularly under conditions of job insecurity. Leveraging the staggered adoption of the Inevitable Disclosure Doctrine (IDD) by US state courts, which restricts CEOs' mobility by protecting trade secrets, we examine the causal impact of external employment constraints on corporate cost management strategies. Using a sample of US firms from 1994 to 2022 and a difference‐in‐differences methodology, we find that cost stickiness significantly decreases following the recognition of the IDD. This reduction is more pronounced for firms led by younger CEOs, those with less internal authority, and firms operating in industries characterized by greater external employment opportunities or high R&D intensity. Our findings suggest that CEOs, facing heightened career concerns and restricted mobility, engage in more aggressive cost‐cutting during sales downturns. Overall, this study provides novel evidence on how labor market frictions shape internal resource adjustment decisions.
Jeon et al. (Mon,) studied this question.