Purpose: This study aims to investigate the association between Corporate Social Responsibility (hereafter CSR) engagement, asymmetric cost behavior and corporate governance mechanisms, for a sample of European firms.

Design methodology/approach: The authors examine the the relation of Corporate Social Responsibility engagement with operating cost stickiness under the effect of corporate governance structures. The authors use a data sample of 13.200 firm-year observations of European firms.

Findings: Empirical findings provide evidence that operating expenses exhibit cost stickiness in the case of firms with stronger engagement in CSR activities, while firms with high intensity of CSR engagement will exhibit less operating cost stickiness under stronger corporate governance mechanisms.

Originality/value: Prior studies on cost stickiness have assigned limited consideration to the impact of corporate social responsibility and corporate governance on firms’ cost behavior. The findings of this study suggest that in addition to economic factors, corporate social responsibility engagement and governance mechanisms may also motivate managers’ cost adjustment decisions and thus help explain operating costs’ behavior. Importantly, it appears that the effectiveness of corporate governance mechanisms may discourage managers from increasing operating costs excessively in response to demand increases, while encourage managers to eliminate slack in operating costs in response to demand decreases.