Cost Stickiness and Cost Inertia: A Two-Driver Model of Asymmetric Cost Behavior

2015 ◽  
Author(s):  
Mark C. Anderson ◽  
Joo Hyung Lee ◽  
Raj Mashruwala
Keyword(s):  
Driver Model ◽  
Cost Behavior ◽  
Asymmetric Cost ◽  
Cost Stickiness ◽  
Asymmetric Cost Behavior

scholarly journals Sticky cost behavior: evidence from Egypt

2017 ◽  
Vol 7 (1) ◽  
pp. 16-34 ◽  
Author(s):  
Awad Elsayed Awad Ibrahim ◽  
Amr Nazieh Ezat
Keyword(s):  
Corporate Governance ◽  
Information Needs ◽  
Academic Research ◽  
Content Type ◽  
Listed Firms ◽  
Corporate Governance Code ◽  
Cost Behavior ◽  
Asymmetric Cost ◽  
Cost Stickiness ◽  
Asymmetric Cost Behavior

Purpose The purpose of this paper is to provide further empirical evidence on the asymmetric cost behavior, cost stickiness, in an emerging country, Egypt, which lacks academic research on this subject. Design/methodology/approach This study uses multiple regression analysis to analyze the behavior of selling, general, and administrative costs (SG&A) and cost of goods sold (CGS) individually and jointly using total costs (TC) for the period 2004-2011 for Egyptian-listed firms. In addition, the study compares the cost behavior three years prior to and after the application of the corporate governance code in Egypt in 2007. Findings The results indicate that asymmetric cost behavior is common among Egyptian-listed firms as their SG&A, CGS, and TC were found to be sticky during the study period. The application of the corporate governance code in Egypt was found to affect the nature of SG&A – the behavior of these costs changed from sticky before the code to anti-sticky after the application of the code. Moreover, the code was found to affect the magnitude of stickiness of both CGS and TC. Originality/value Greater awareness about cost behavior is important for emerging markets such as Egypt in order to protect investors’ interests and satisfy their information needs. To the best of our knowledge, this study is the first to provide evidence on cost stickiness in Egypt. Moreover, this study provides further evidence on the correlation between corporate governance and asymmetric cost behavior.

Discussion of Asymmetric Cost Behavior—Sticky Costs: Expenses versus Cash Flows

2014 ◽  
Vol 26 (2) ◽  
pp. 81-90 ◽  
Author(s):  
Efrat Shust ◽  
Dan Weiss
Keyword(s):  
Cash Flows ◽  
Economic Costs ◽  
Comprehensive Review ◽  
Cost Behavior ◽  
Asymmetric Cost ◽  
Asymmetric Costs ◽  
The Asymmetry ◽  
Cost Stickiness ◽  
Asymmetric Cost Behavior

ABSTRACT This note highlights a subtle aspect of the asymmetric costs literature not covered in the comprehensive review by Banker and Byzalov (2014). Specifically, we test the assertion underlying this literature that reported expenses can serve as an appropriate proxy for estimating the asymmetry of economic costs. Our findings refute this assertion, indicating that reporting choices influence the estimated asymmetry level of reported expenses. As a result, reported expenses are significantly more asymmetric (sticky) than economic costs. This evidence suggests that reporting choices required by GAAP matter in estimating cost stickiness. These findings enrich Banker and Byzalov (2014) by suggesting that future asymmetric costs research should (1) look for alternative accounting variables with the potential to capture economic costs, and (2) explore how various types of reporting choices affect asymmetric cost behavior.

The Magnitude of Sales Change and Asymmetric Cost Behavior

2018 ◽  
Vol 31 (3) ◽  
pp. 65-81 ◽  
Author(s):  
Mustafa Ciftci ◽  
Taisier A. Zoubi
Keyword(s):  
Small Current ◽  
Slack Resources ◽  
Large Current ◽  
Cost Behavior ◽  
Asymmetric Cost ◽  
The Impact ◽  
Cost Stickiness ◽  
Asymmetric Cost Behavior ◽  
Sales Increase ◽  
Jel Classifications

ABSTRACT We investigate the impact of the magnitude of current sales changes on asymmetric cost behavior. We expect that managers are likely to consider small (large) current sales decreases as temporary (permanent). Therefore, they will be less (more) likely to cut costs for small (large) current sales decreases. Accordingly, we predict and find that, conditional on a prior sales increase, cost stickiness is greater for small current sales changes than for large current sales changes. In addition, prior research suggests that, conditional on a prior sales decrease, slack resources retained from the prior period might lead to cost anti-stickiness. We expect that slack resources retained from the prior period will have a greater (smaller) impact on cost behavior for small (large) current sales changes. Accordingly, we predict and find that, conditional on a prior sales decrease, cost anti-stickiness is greater for small current sales changes than for large current sales changes. JEL Classifications: M41; M46; G12.

scholarly journals Asymmetric Cost Behavior and Investment in R&D: Evidence from China’s Manufacturing Listed Companies

2019 ◽  
Vol 11 (6) ◽  
pp. 1785 ◽  
Author(s):  
Renji Sun ◽  
Kung-Cheng Ho ◽  
Yan Gu ◽  
Chang-Chih Chen
Keyword(s):  
Economic Consequences ◽  
Cost Behavior ◽  
Failure Cost ◽  
Asymmetric Cost ◽  
The Mean ◽  
Using Data ◽  
D Investment ◽  
Cost Stickiness ◽  
Asymmetric Cost Behavior ◽  
Total Sales

Asymmetric cost behavior or stickiness has drawn attention in recent years. Although studies have focused on the causes of and factors contributing to cost stickiness, few have investigated its economic consequences. This paper empirically examines how firms’ asymmetric behavior influences their research and development (R&D) investment. Because cost stickiness increases innovation failure cost, we expect cost stickiness to reduce R&D expenditure. By using data from Chinese listed manufacturing firms between 2007 and 2015, we empirically test and confirm this hypothesis. On average, with one standard deviation added to the mean, R&D expenditure over total asset and that over total sales are reduced by 2.7% and 2.2%, respectively. Furthermore, the dampening effect of cost stickiness on R&D investment becomes more prominent with increasing risks faced by firms. Only SG&A cost stickiness exerts a dampening effect on R&D, whereas cost of goods sold (COGS) and total cost stickiness demonstrate no significant effects.

Cost Behavior and Analysts’ Earnings Forecasts

2010 ◽  
Vol 85 (4) ◽  
pp. 1441-1471 ◽  
Author(s):  
Dan Weiss
Keyword(s):  
Management Accounting ◽  
Earnings Forecasts ◽  
Research Topic ◽  
Financial Accounting ◽  
Market Response ◽  
Earnings Surprises ◽  
Cost Behavior ◽  
Asymmetric Cost ◽  
Cost Stickiness ◽  
Asymmetric Cost Behavior

ABSTRACT: This study examines how firms’ asymmetric cost behavior influences analysts’ earnings forecasts, primarily the accuracy of analysts’ consensus earnings forecasts. Results indicate that firms with stickier cost behavior have less accurate analysts’ earnings forecasts than firms with less sticky cost behavior. Furthermore, findings show that cost stickiness influences analysts’ coverage priorities and investors appear to consider sticky cost behavior in forming their beliefs about the value of firms. This study integrates a typical management accounting research topic, cost behavior, with three standard financial accounting topics (namely, accuracy of analysts’ earnings forecasts, analysts’ coverage, and market response to earnings surprises).

scholarly journals Co-CEOs and Asymmetric Cost Behavior

2019 ◽  
Vol 11 (4) ◽  
pp. 1046 ◽  
Author(s):  
Jiyeon Lee ◽  
Jin-Ha Park ◽  
Jiwon Hyeon
Keyword(s):  
Corporate Governance ◽  
Foreign Ownership ◽  
Governance Mechanism ◽  
Governance Mechanisms ◽  
Cost Behavior ◽  
Corporate Governance Mechanism ◽  
Asymmetric Cost ◽  
External Governance ◽  
Cost Stickiness ◽  
Asymmetric Cost Behavior

This study investigates the effect of co-CEO structure on asymmetric cost behavior. A firm’s cost behavior reflects managers’ decision making about resources, which can be influenced by various factors. One of them relates to a manager’s decision to inefficiently reallocate their company’s resources when sales decline in pursuit of their incentives for empire-building and disincentives for downsizing. These inefficient resource allocations may result in asymmetric cost behavior, and ultimately be harmful to a firm’s sustainability. We consider the co-CEO structure as an alternative corporate governance mechanism that prevents managers from making inappropriate decisions. By doing so, we investigate whether the degree of cost stickiness differs between co-CEO and single-CEO structures, and whether the former complements external governance mechanisms, particularly foreign ownership, in mitigating cost stickiness. We analyze data from Korean listed companies for 2000–2013, and find that the cost stickiness is lower in the co-CEO structure than in the single-CEO structure. Thus, the co-CEO structure works as an alternative corporate governance mechanism to control the agency problem by inducing mutual monitoring among co-CEOs. Furthermore, the reduction in cost stickiness is greater for firms with higher foreign ownership, indicating that the co-CEO structure complements external governance mechanisms.

The Moderating Effect of Prior Sales Changes on Asymmetric Cost Behavior

2014 ◽  
Vol 26 (2) ◽  
pp. 221-242 ◽  
Author(s):  
Rajiv D. Banker ◽  
Dmitri Byzalov ◽  
Mustafa Ciftci ◽  
Raj Mashruwala
Keyword(s):  
Adjustment Costs ◽  
Theoretical Explanation ◽  
Managerial Decisions ◽  
Empirical Estimates ◽  
Cost Behavior ◽  
Asymmetric Cost ◽  
The Impact ◽  
Cost Stickiness ◽  
Asymmetric Cost Behavior ◽  
Sales Increase

ABSTRACT Recent research documents the empirical phenomenon of “sticky costs” and attributes it to a theory of deliberate managerial decisions in the presence of adjustment costs. We refine this theoretical explanation and show that it gives rise to a more complex pattern of asymmetric cost behavior that combines two opposing processes: cost stickiness conditional on a prior sales increase, and cost anti-stickiness conditional on a prior sales decrease. These predictions reflect the structure of optimal decisions with adjustment costs and the impact of prior sales changes on managers' expectations about future sales changes. Empirical estimates for Compustat data support our hypotheses. We further verify our predictions using additional proxies for managers' expectations, and show that our model offers important new insights. JEL Classifications: D24; M41.

Is cost stickiness associated with management earnings forecasts?

2019 ◽  
Vol 28 (2) ◽  
pp. 173-211 ◽  
Author(s):  
Shipeng Han ◽  
Zabihollah Rezaee ◽  
Ling Tuo
Keyword(s):  
Information System ◽  
Information Asymmetry ◽  
Earnings Forecasts ◽  
Management Earnings Forecasts ◽  
Firm Level ◽  
Content Type ◽  
Cost Behavior ◽  
Asymmetric Cost ◽  
Cost Stickiness ◽  
Asymmetric Cost Behavior

Purpose The literature suggests that management discretion to adjust resources in response to changes in sales can create asymmetric cost behavior and management incentives to move stock prices can influence its decision to release management earnings forecasts (MEF). The purpose of this paper is to investigate the association between a firm’s degree of cost stickiness and its propensity to release MEF. The authors propose that both MEF and cost stickiness are influenced by management strategic choices and provide two possible explanations along with supportive evidence. First, when management is optimistic about future performance, it tends to increase both cost stickiness and is willing to disclose the optimistic expectations through MEF. Second, cost stickiness increases information asymmetry between management and investors, thus management tends to issue earnings forecast to mitigate the perceived information asymmetry. Design/methodology/approach The authors collect firm-level fundamental data from the COMPUSTAT database, and market data from the CRSP database during 2005 and 2016. The data used to measure variables related to institutional ownership and financial analysts are, respectively, obtained from the Thomson Reuters and the I/B/E/S databases. The quarterly MEF data are from two databases. The authors obtain the data before 2012 the from Thomson First Call’s Company Issued Guidance database and manually collect the data between 2012 and 2016 from the Bloomberg database for the largest 3,000 publicly traded US companies. The measurement of cost stickiness is based on the industry-level measurement developed by Anderson et al. (2003) and the firm-level measurements developed by Weiss (2010). The authors construct two measurements, management’s propensity to issue MEF and the frequency of MEF, to capture management’s voluntary disclosure strategy. Findings The analyses of a sample between year 2005 and 2016, indicate that the firm-level cost stickiness is positively associated with the firm’s propensity to issue MEF and the frequency of MEF. Moreover, the authors find that the level of cost stickiness is associated with more favorable earnings news forecasted by management. Additional tests suggest that both information asymmetry and managerial optimism may explain the relationship between cost stickiness and MEF. Finally, the authors find that the association between cost stickiness and MEF behaviors is more pronounced when the resource adjustment cost is high and when the firm efficiency is high. The results are robust after using alternative measurements of cost stickiness and MEF. Originality/value First, this paper attempts to build a bridge between managerial accounting and financial accounting by providing evidence of managerial incentives and discretions that affect both cost structure and earnings. The authors contribute to, and complement, prior studies that primarily disentangle the complicated accounting information system by focusing on either the internal information system or the external information system. Second, the paper complements prior studies that examine cost stickiness and its determinants of asymmetric cost behavior by providing additional evidence for the value-relevance of cost stickiness strategy and its link to MEF releases in mitigating information asymmetry. Third, the findings are also relevant to current debates among policymakers, academia and practitioners regarding modernization of mandatory and voluntary disclosures through discussing the managerial incentive behind the managerial disclosure strategies as reflected in MEF releases (SEC, 2013). Fourth, the authors provide evidence regarding management’s role in influencing cost asymmetry and MEF releases, which support the theoretical argument that management discretions affect the firms’ cost structure and MEF disclosures.

scholarly journals Board characteristics and asymmetric cost behavior: evidence from Egypt

2018 ◽  
Vol 31 (2) ◽  
pp. 301-322 ◽  
Author(s):  
Awad Elsayed Awad Ibrahim
Keyword(s):  
Corporate Governance ◽  
Emerging Economies ◽  
Cost Model ◽  
Ordinary Least Squares ◽  
Content Type ◽  
Board Characteristics ◽  
Cost Behavior ◽  
Asymmetric Cost ◽  
Cost Stickiness ◽  
Asymmetric Cost Behavior

PurposeThis paper aims to provide further evidence on asymmetric cost behavior (cost stickiness) from one of the emerging economies, Egypt. The study provides empirical evidence on the potential impact of corporate governance on nature and extent of asymmetric cost behavior.Design/methodology/approachThe study estimates three multiple regression models using ordinary least squares to examine the behavior of cost of goods sold (COGS) and the influence of board characteristics and other control variables in a sample of 80 listed companies during 2008-2013.FindingsThe analysis provides evidence on COGS asymmetric behavior, where the analysis finds that COGS increases by 1.05 per cent but decrease by 0.85 per cent for an equivalent activity change of 1 per cent, which contradicts the traditional cost model assumption that costs behave linearly. In addition, the analysis finds that firm-year observations with larger boards, role duality and higher non-executives ratio exhibit greater cost asymmetry than others, while firms-years with successive sales decrease, higher economic growth and institutional ownership found to exhibit lower cost stickiness.Originality/valueThis study contributes by providing evidence on asymmetric cost behavior from one of emerging economies. Further, the study extends the very few studies on the relationship between corporate governance and asymmetric cost behavior. In addition, the study contributes by examining a different cost type (COGS) that has been examined by very few studies. Finally, the study provides an evaluation of the 2007 Egyptian Corporate Governance Code in the cost behavior context.

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