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Book part
Publication date: 29 March 2016

Chandra Subramaniam and Marcia Weidenmier Watson

This paper attempts to resolve the conflicting results on sticky cost behavior in prior literature. Large sample studies find that selling, general, and administrative…

Abstract

Purpose

This paper attempts to resolve the conflicting results on sticky cost behavior in prior literature. Large sample studies find that selling, general, and administrative costs (SG&A) and cost of goods sold (CGS) are sticky, that is, costs are less likely to decrease when activity decreases than to increase when activity increases. In contrast, studies limited to one industry find little or no sticky cost behavior.

Methodology/approach

We investigate whether SG&A and CGS sticky cost behavior differ across/ four major industry groups (manufacturing, merchandising, financial, and services) characterized by different production, operational, and economic environments. In addition, we study whether sticky cost behavior arises for all changes in activity level (as measured by revenue changes) or for only large changes in activity level. Finally, we investigate whether determinants of sticky cost behavior vary across industries.

Findings

Our results suggest that costs in the manufacturing industry are the “stickiest,” while costs in the merchandising industry are the “least sticky,” with financial and service industries exhibiting some level of sticky cost behavior. Further, we find that sticky cost behavior is industry-specific, both in the magnitude of activity changes that give rise to sticky cost behavior and in the determinants that drive the behavior.

Research limitations/implications

Our investigation of 20 distinct sub-industries within the “stickiest” manufacturing industry finds that while some sub-industry groupings show significant sticky behavior, most do not. This result may explain why, contrary to large sample studies, single industry studies find little or no sticky behavior in costs.

Originality/value

Our research is the first to try and reconcile the conflicting results on sticky cost behavior. Understanding the pervasiveness of stickiness is necessary to move research forward in this domain.

Details

Advances in Management Accounting
Type: Book
ISBN: 978-1-78441-652-2

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Article
Publication date: 13 January 2020

María Inés Stimolo and Marcela Porporato

Cost behaviour literature is expanding its reach beyond developed economies; however, there is limited knowledge about its causes in emerging economies. This is an…

Abstract

Purpose

Cost behaviour literature is expanding its reach beyond developed economies; however, there is limited knowledge about its causes in emerging economies. This is an exploratory study of sticky costs behaviour determinants in Argentina, a country with periodic political and economic turbulence. The purpose of this paper is to test the effect of GDP, asset intensity, industry and cost type in an inflationary context.

Design/methodology/approach

Anderson et al. (2003) empirical regression (ABJ model) is replicated in Argentina with 667 observations from 96 firms between the years 2004 and 2012. It uses panel data and variables are defined as change rates between two periods. The sample excludes financial and insurance firms. It tests if sticky cost behaviour changes in periods of macroeconomic deceleration, or in firms belonging to industries with different asset intensity levels, or among different cost types.

Findings

The analysis shows that costs are sticky in Argentina, where a superb economic outlook is required to delay cutting resources or increasing costs. Cost behaviour is affected by social and cultural factors, such as labour inflexibility driven by powerful unions and not by protective employment laws, asset intensity (industry) and macroeconomic environment. Results suggest that costs are sticky for aggregate samples, but not for all subsamples.

Practical implications

Administrative costs are sticky when GDP grows; but when growth declines, managers or firms do not delay cost cutting actions. Some subsamples are extreme cases of stickiness while others are anti-sticky, casting some doubt on the usefulness of sticky costs empirical tests applied to country-wide samples. Careful selection of observations for sticky costs studies in emerging economies is critical.

Originality/value

Evidence from previous studies show that on average costs are remarkably sticky in Argentina; this study shows that cost reduction activities occur faster but are not persistent enough to change the aggregated long-term results of cost stickiness in the presence of moderate to high inflation. The study contributes to the literature by suggesting that observations used in sticky costs studies from emerging economies might be mainly from positive macroeconomic environments, might have skewed results due to extreme cases of stickiness or might be distorted by inflation.

Details

Journal of Accounting in Emerging Economies, vol. 10 no. 1
Type: Research Article
ISSN: 2042-1168

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Article
Publication date: 6 February 2017

Awad Elsayed Awad Ibrahim and Amr Nazieh Ezat

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…

Abstract

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.

Details

Journal of Accounting in Emerging Economies, vol. 7 no. 1
Type: Research Article
ISSN: 2042-1168

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Article
Publication date: 2 July 2018

Awad Elsayed Awad Ibrahim

This paper aims to provide further evidence on asymmetric cost behavior (cost stickiness) from one of the emerging economies, Egypt. The study provides empirical evidence…

Abstract

Purpose

This 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/approach

The 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.

Findings

The 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/value

This 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.

Details

Accounting Research Journal, vol. 31 no. 2
Type: Research Article
ISSN: 1030-9616

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Article
Publication date: 1 April 2004

M. Oberholzer and J.E.E. Ziemerink

Cost behaviour classification and cost behaviour structures of manufacturing companies. The purpose of this paper is to determine the cost structures of companies that…

Abstract

Cost behaviour classification and cost behaviour structures of manufacturing companies. The purpose of this paper is to determine the cost structures of companies that formed part of an empirical investigation. Further aspects were investigated to determine why manufacturing companies classify cost behaviour into fixed and variable components and to determine how these companies classify specific cost items. It was found that there is a significant negative relationship between the fixed cost of a company and its degree of technological development. This means that labour intensive companies have more fixed cost as part of total costs and therefore a higher operating risk than technologically developed companies. It was also found that manufacturing companies classify cost items differently and this study provides some guidelines how to manage cost behaviour.

Details

Meditari Accountancy Research, vol. 12 no. 1
Type: Research Article
ISSN: 1022-2529

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Article
Publication date: 1 March 1986

Theo M.M. Verhallen and W. Fred van Raaij

Many psychological models of consumer behaviour use the construct of attitude, whereas in economic models behaviour is determined by costs and benefits under budget…

Abstract

Many psychological models of consumer behaviour use the construct of attitude, whereas in economic models behaviour is determined by costs and benefits under budget constraints. In this article, a behavioural cost‐benefit approach to consumer behaviour is proposed. Behavioural costs include time, physical and psychic costs of initiating, maintaining and changing behaviour. A behavioural model is proposed, in which cost‐benefit trade‐offs of behaviours play a central role. Some marketing applications on the evaluation of products, on the prediction of behavioural intentions and on shopping behaviour are discussed.

Details

European Journal of Marketing, vol. 20 no. 3/4
Type: Research Article
ISSN: 0309-0566

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Article
Publication date: 31 December 2004

Michael A. Kaszubski and Steve Ebben

Continuing budget pressure is forcing facilities groups to re‐think their current service delivery models and develop initiatives that reduce cost and increase efficiency…

Abstract

Continuing budget pressure is forcing facilities groups to re‐think their current service delivery models and develop initiatives that reduce cost and increase efficiency. Making this task more difficult is the fact that many costs incurred by the facilities department are the result of behaviour patterns of non‐facilities employees. To assist in this task one facilities organisation turned to activity‐based costing (ABC) as a solution. ABC has allowed the facilities group to identify internal and external behaviour changes that affect the cost of delivering services. Once identified, plans of actions are developed in conjunction with the various departments to address equipment and facilities usage, service level requirements and operational process improvements. The execution of these plans allows the facilities group specifically to identify cost drivers that can be eliminated, thus avoiding the traditional arbitrary budget reduction process. Readers will be introduced to the application of the ABC model and how behaviour modification initiatives, using ABC, provide supporting data for the development of the annual budget. In addition, readers will learn how the development of behaviour change initiatives can place the responsibility for corrective maintenance cost control on the end user.

Details

Journal of Facilities Management, vol. 3 no. 2
Type: Research Article
ISSN: 1472-5967

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Article
Publication date: 13 November 2017

Sandra Cohen, Sotirios Karatzimas and Vassilios-Christos Naoum

The purpose of this paper is to explore the asymmetric cost behaviour in Greek local governments. More precisely, it investigates whether municipality costs show…

Abstract

Purpose

The purpose of this paper is to explore the asymmetric cost behaviour in Greek local governments. More precisely, it investigates whether municipality costs show stickiness or anti-stickiness behaviour after increases or decreases in the stream of their revenues.

Design/methodology/approach

The Anderson et al.’s (2003) approach is adapted to the public sector environment by using types of expenses and revenues typical to the local government setting. The data sample consists of 1,852 observations of Greek municipalities for the period 2002-2008.

Findings

The empirical evidence suggests that local government managers adjust resources related to administrative services faster when revenues decrease than when they rise (anti-stickiness cost behaviour). On the contrary, they adjust costs of service provision which are associated with core activities asymmetrically; more quickly for upward than for downward activity changes (cost stickiness behaviour).

Research limitations/implications

While prior studies examine the sticky cost phenomenon in the private sector, this study explores this phenomenon in the public sector through a data sample of municipalities. Local governments constitute an appealing and unique setting for the examination of asymmetric cost behaviour due to the existence of a strong political influence, which appears to affect rational economic decision making, and their non-profit character, which prevents them from acting in a business-like manner.

Practical implications

Understanding how cost stickiness works inside local understanding how cost stickiness works inside local governments, could lead to an understanding of its implications in periods of cutback measures. Decreases in municipalities’ subsidies and grants as a result of cutbacks in central government expenditures should not be expected to automatically result in symmetric savings in expenditures as corresponding increases in expenditures when revenues used to grow. At the same time, it might be difficult to achieve balanced budgets in municipalities when there is a considerable decrease in revenues, without having to make considerable adjustments to the input values, the output and the mix of services offered by them.

Originality/value

This study contributes to the accounting literature by expanding the understanding of how deliberate decisions influence the asymmetric cost behaviour in local governments, to different cost categories (administrative expenses and cost of service provision) and different revenue categories (grants, tax revenues and revenues from sales of goods and services).

Details

Journal of Applied Accounting Research, vol. 18 no. 4
Type: Research Article
ISSN: 0967-5426

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Abstract

Details

Documents from the History of Economic Thought
Type: Book
ISBN: 978-0-7623-1423-2

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Article
Publication date: 13 November 2019

Komang Ayu Krisnadewi and Noorlailie Soewarno

With a particular emphasis on corporate strategies for innovation, the purpose of this paper is to examine how cost behaviour operates under conditions of strong…

Abstract

Purpose

With a particular emphasis on corporate strategies for innovation, the purpose of this paper is to examine how cost behaviour operates under conditions of strong competition in the retail industry.

Design/methodology/approach

Retail companies listed on the Indonesian, Singaporean and Malaysian capital markets are studied using the regression analysis method.

Findings

The findings of this study show the sticky behaviour of changes in the selling, general and administrative (SGA) costs when companies are under competitive pressure. When sales increase, SGA costs will increase; however, when sales decline, SGA costs evidently increase. This is especially true for retail companies which have suffered a decrease in their sales of less than 7 per cent, but experienced positive sales growth in the previous period. The suggestion would seem to be that competition leads to greater aggression and the contemporary real options theory bears this out.

Research limitations/implications

This study only uses data from retail companies listed on stock exchanges in Singapore, Indonesia and Malaysia.

Practical implications

The type of industry, the extent of the competition and the corporate strategy employed might influence the extent of cost stickiness. Therefore, the users of financial statements need to understand these factors.

Originality/value

While previous studies incorporated a variety of industries, this paper focuses on examining cost behaviour amid the competitive pressure from recent phenomena in the retail industry. The study provides empirical evidence for supporting the contemporary real options theory. When an industry experiences competition, investing in an uncertain situation will add value to a company, even if it causes sticky cost behaviour. This result contributes to the literature on cost behaviour and strategy management.

Details

Journal of Applied Accounting Research, vol. 21 no. 1
Type: Research Article
ISSN: 0967-5426

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