We examine the relationship between financial risk and cost behavior, both theoretically and empirically. We suggest that financial risk will affect the degree of discretion in managerial resource adjustment decisions by its impacts on financial flexibility. As expected, our results show that financial risk increases the degree of cost anti-stickiness in the case of a prior activity decrease. On the other hand, financial risk appears to have no statistically significant influence on cost behavior in the case of a prior activity increase. This result is not consistent with our prediction. We also examine the moderating effect of the close relationships between firms and banks on the association between financial risk and asymmetric cost behavior using data on the main bank system in Japan. Consistent with our prediction, our results show that firms’ close ties with the main banks mitigate the adverse impacts of financial risk and allow managers to adjust resources flexibly in response to sales changes, even if the firms face high financial risk.