Economic growth and cost stickiness: evidence from Egypt

Awad Elsayed Awad Ibrahim (Business Administration Department, Arab Open University, Egypt)

Journal of Financial Reporting and Accounting

ISSN: 1985-2517

Publication date: 6 July 2015

Abstract

Purpose

This paper aims to examine whether costs respond asymmetrically to demand change, and examine the influence of economic growth on cost stickiness, in the pre- and post-2008 financial crisis periods.

Design/methodology/approach

This study uses multiple regression models to investigate the behavior of three costs: selling, general and administrative (SG & A), cost of goods sold (COGS) and operating costs (OCs) for the 2004-2011 period. Moreover, the study compares cost stickiness during the economic prosperity period (2006-2008) with cost stickiness during the economic recession period (2009-2011).

Findings

The results reveal that SG & A increased by 0.38 per cent but decreased by 0.08 per cent, and COGS increased by 1.02 per cent but decreased by 0.57 per cent for a 1 per cent demand change, which proves cost stickiness. However, OC increased by 0.91 per cent, but decreased by 1.03 per cent for a 1 per cent demand change, which proves cost anti-stickiness. Moreover, SG & As were sticky during the prosperity period, but anti-sticky during the recession period. COGSs were sticky in both periods; however, the extent of cost stickiness is larger in the prosperity period. In contrast, OC were statistically insignificant in both periods.

Originality/value

The results imply that managers should not use the same cost model all the time, as the economic growth fluctuations were found to affect the nature and extent of cost behavior. In addition, researchers should provide a modified cost model that considers the nonlinearity of correlation between costs and activity.

Keywords

Citation

Ibrahim, A. (2015), "Economic growth and cost stickiness: evidence from Egypt", Journal of Financial Reporting and Accounting, Vol. 13 No. 1, pp. 119-140. https://doi.org/10.1108/JFRA-06-2014-0052

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Publisher

:

Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

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