ARE COSTS STICKY? EVIDENCE FROM SERBIA

Jovana Jugović

DOI Number
https://doi.org/10.22190/FUEO201102006J
First page
073
Last page
087

Abstract


This paper is focused on the theory of sticky costs, created out of researches which pointed to the fact that costs do not act symmetrically in the case of equivalent increase and decrease of the activity volume, as it is implied by the traditional cost theory. Deliberate business decisions, the ones made in order to increase company’s value, as well as opportunistic decisions aimed at the realization of managers' personal goals are found as some of essential causes of cost stickiness. In order to examine the phenomenon of stickiness in the cost behavior of companies that operate in Serbia, we conducted a research on a sample of 917 medium and large companies from manufacturing sector for the period 2007 – 2016. The analysis of panel data pointed to the presence of stickiness in the behavior of operating costs - it showed that they grow by 0.847% as revenues grow by 1%, and they fall by 0.718 % due to 1% drop in revenues. We also found a lagged adjustment to operating costs for changes in operating revenues and partial reversal of stickiness in the period after a revenue decrease.


Keywords

cost behavior, cost stickiness, adjustments costs, behavioral finance, agency theory

Full Text:

PDF

References


Anderson, M. C., Banker, R. D., & Janakiraman, S. N. (2003). Are selling, general, and administrative costs “sticky”. Journal of Accounting Research, 41(1), 47–63.

Anderson, S., & Lanen, W. (2007). Understanding cost management: What can we learn from the evidence on ‘sticky costs’? (Working Paper), Melbourne: University of Melbourne.

Balakrishnan, R., & Gruca, T. (2008). Cost Stickiness and Core Competency: A Note. Contemporary Accounting Research, 25(4), 993-1006.

Banker, R., & Byzalov, D. (2014). Asymmetric Cost Behavior. Journal of Management Accounting Reserch, 26(2), 43-79.

Banker, R., Byzalov, D., & Chen, L. (2013). Employment Protection Legislation, Adjustment Costs and Cross-Country Differences in Cost Behavior. Journal of Accounting & Economics, 55,111-127. http://dx.doi.org/10.1016/j.jacceco.2012.08.003

Banker, R., Byzalov, D., Fang, S., & Liang, Y. (2018). Cost Management Research. Journal of Management Accounting Research, 30(3), 187-209.

Banker, R., Ciftci, M., & Mashruwala, R. (2008). Managerial Optimism, Prior Period Sales Changes, and Sticky Cost Behavior. Retrieved from: https://dx.doi.org/10.2139/ssrn.1599284

Biais, B., Hilton, D., Mazurier, K., & Pouget, S. (2008). Judgemental Overconfidence, Self-Monitoring, and Trading Performance in an Experimental Financial Market. Review of Economic Studies, 72(2), 287-312.

Bugeja, M., Lu, M., & Shan, Y. (2015). Cost stickiness in Australia: Characteristics and determinants. Australian Accounting Review, 25(3), 248-261.

Calleya, K., Steliaros, M., & Thomas, D. C. (2006). A note on cost stickiness: Some international comparisons. Management Accounting Research, 17(2), 127-140.

Chen, C. X., Gores, T., & Nasev, J. (2013). Managerial overconfidence and cost stickiness (Working paper), University of Illinois at Urbana-Champaign and University of Cologne. https://doi.org/10.2139/ssrn.2208622

Chen, C. X., Lu, H., & Sougiannis, T. (2012). The Agency Problem, Corporate Governance, and the Asymmetrical Behavior of Selling, General, and Administrative Costs. Contemporary Accounting Research, 29(1), 252-282.

Cooper, R., & Kaplan, R. (1992). Activity-based Systems: Measuring the Costs of Resource Usage. Accounting Horizons, September 1992, 1-13.

Dalla Via, N., & Perego, P. (2014). Sticky cost behaviour: evidence from small and medium sized companies. Accounting and Finance, 54(3), 753–778.

De Medeiros, O. R., & Costa, P. D. S. (2004). Cost stickiness in Brazilian firms. Available at SSRN 632365: https://ssrn.com/abstract=632365.

Dierynck, B., Landsman, W. R., & Renders, A. (2012). Do managerial incentives drive cost behavior? Evidence about the roles of the zero earnings benchmark for labor cost behavior in Belgian private firms. The Accounting Review, 87(4), 1219-1246. https://doi.org/10.2308/accr-50153

Fabre, B., & Heude-Francois, A. (2009). Optimism and overconfidence investors' biases: a methodological note. Finance, 30(1), 79-119.

Guenther, T. W., Riehl, A., & Rößler, R. (2014). Cost stickiness: state of the art of research and implications. Journal of Management Control, 24(4), 301-318.

Hamermesh, D. S., & Pfann, G. A. (1996). Adjustment costs in factor demand. Journal of Economic literature, 34(3), 1264-1292.

Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American economic review, 76(2), 323-329.

Kama, I., & Weiss, D. (2012). Do Ernings Targets and Managerial Incentives Affect Sticky Costs. Journal of Accounting Research, 51(1), 201-224. https://doi.org/10.1111/j.1475-679X.2012.00471.x

Kama, I., & Weiss, D. (2010). Do managers' deliberate decisions induce sticky costs?. Tel Aviv University, Faculty of Management, The Leon Recanati Graduate School of Business Administration.

Li, W. L., & Zheng, K. (2017). Product market competition and cost stickiness. Review of Quantitative Finance and Accounting, 49(2), 283-313.

Lucas, R. (1967). Adjustment Costs and the Theory of Supply. The Journal of Political Economy, 75(4), 321-334.

Maher, M., Stickey, C., & Weil, R. (2008). Managerial Accounting: An Introduction to Concepts, Methods and Uses. Thomson: South-Western.

Malinić, D., Milićević, V., & Stevanović, N. (2018). Upravljačko računovodstvo [Management Accounting]. Ekonomski fakultet Beograd.

Malmendier, U., & Tate, G. (2005). CEO overconfidence and Corporate Investment. The Journal of Finance, 60(6), 2661-2700.

Motis, J. (2007). Mergers and acquisitions motives. Toulouse School of Economics EHESS (GREMAQ) and University of Crete. Retrieved from https://economics.soc.uoc.gr/wpa/docs/paper2mottis.pdf

Noreen, E., & Soderstrom, N. (1997). The Accuracy of Proportional Cost Models: Evidence from Hospital Service Departments. Review of Accounting Studies, 2(1), 89–114.

Novák, P., Dvorský, J., Popesko, B., & Strouhal, J. (2017). Analysis of overhead cost behavior: case study on decision-making approach. Journal of International Studies, 10(1),74-91. https://doi.org/10.14254/2071-8330.2017/10-1/5

Novák, P., Hrušecká, D., & Macurová, L. (2018). Perception of cost behaviour in industrial firms with emphasis on logistics and its costs. FME Transactions, 46(4), 658-667. https://doi.org/10.5937/fmet1804658N

Pamplona, E., Fiirst, C., de Jesus Silva, T. B., & da Silva Zonatto, V. C. (2016). Sticky costs in cost behavior of the largest companies in Brazil, Chile and Mexico. Contaduría y Administración, 61(4), 682-704.

Pervan, M., & Pervan, I. (2012). Sticky costs: evidence from Croatian food and beverage industry. International Journal of Mathematical Models and Methods in Applied Sciences, 8(6), 963-970.

Qin, B., Mohan Warsha, A., & Kuang, F. Y. (2015). CEO Overconfidence and Cost Stickiness. Management Control & Accounting, 2015(2), 34-38.

Regulation on the classification of activities, https://www.paragraf.rs/propisi/uredba_o_klasifikaciji_delatnosti.html

Salamah, M. A., & Abulezz, E. M. (2017). Cost Stickiness: Does Manager's Preference Toward Risk Matter? An Empirical Study. SSRN Electronic Journal. https://dx.doi.org/10.2139/ssrn.3492541

Serbian Business Registers Agency. http://www.apr.gov.rs

Skala, D. (2008). Overconfidence in Psychology and Finance – an Interdisciplinary Literature Review. Bank i Kredyt, 4, 33-50.

Todorović, M. (2011). Psihologija i finansijski menadžment: bihevioralne korporativne finansije [Psychology and Financial Management: Behavioral Corporate Finance]. Ekonomika preduzeća, 275-287.

Weidenmier, M., & Subramaniam, C. (2003). Additional Evidence on the Sticky Behavior of Costs. Working Paper, Texas Christian University.




DOI: https://doi.org/10.22190/FUEO201102006J

Refbacks

  • There are currently no refbacks.


© University of Niš, Serbia
Creative Commons License CC BY-NC-ND
ISSN 0354-4699 (Print)
ISSN 2406-050X (Online)