Understanding Cost Management: What Can We Learn from the Evidence on 'Sticky Costs'? (original) (raw)

Are Selling, General, and Administrative Costs "Sticky"?

Journal of Accounting Research, 2003

A fundamental assumption in cost accounting is that the magnitude of a change in costs is the same for an equivalent magnitude of either an increase or a decrease in activity volume. In this study, we investigate whether costs are "sticky" -increase more with an activity increase than they decrease with an equivalent activity decrease. We find, for 7,629 firms over 20 years, that SG&A costs increase on average at a rate of 0.55% per 1% increase in sales but decrease only 0.35% per 1% decrease in sales. We describe a model of cost behavior in which sticky costs may occur because managers deliberately adjust the resources committed to an activity.

Cost Stickiness in Brazilian Firms

SSRN Electronic Journal, 2000

Conventional cost accounting assumes that the relation between cost and volume is symmetric for volume increases and decreases. We test an alternative model where costs increase more when activity rises than they decrease when activity falls by an equivalent amount. We find, for a sample of Brazilian firms that selling, general, and administrative costs increase 0.59% per 1% increase in sales but decrease only 0.32% per 1% decrease in sales. We test several hypotheses about the properties of sticky costs and how the stickiness of SG&A costs changes with firm circumstances and we confirm cost stickiness for Brazilian firms.

Further Evidence on the Sticky Behaviour of Costs

SSRN Electronic Journal, 2000

Contemporary studies on cost behaviour find that costs increase more with activity increases than they decrease in response to equivalent activity decreases. This sticky cost behaviour contradicts the traditional model which assumes that costs behave symmetrically for activity increases and decreases. Using a sample of US, UK, French, and German firms, we find that operating costs are sticky in response to changes in revenues; operating costs increase, on average, by 0.97% per 1% increase in revenues, but decrease by only 0.91% per 1% decrease in revenues. However, costs of firms that are subject to code-law systems of corporate governance (France and Germany) are more sticky than costs of firms which are subject to common-law systems of corporate governance (US and UK). Firm-specific and industry characteristics also impact on levels of cost stickiness.

The Asymmetrical Cost Behavior: Cost Stickiness in Indonesian Listed Manufacturing Companies

SSRN Electronic Journal, 2018

The asymmetrical behavior of cost or sticky cost is a condition, where costs increase more when the activity rises compared to the decrease when the activity falls. This research applies the study of Ratnawati & Nugrahanti (2015) by using the phenomenal framework of sticky cost from Anderson, Banker, & Janakiraman (2003) against the previous inconsistent results in Indonesian listed manufacturing companies. This research uses 5 years period from 2011-2015 and 53 Indonesian listed manufacturing companies as sample. Then, net sales revenue and asset intensity are used to capture the stickiness of period costs, namely selling, general, and administrative costs (SG&A) and product costs, namely cost of goods sold (COGS), this measurement is then used in log linear panel data regression analysis. The result shows that the stickiness of selling, general, and administrative costs (SG&A) can't be proven in overall, cost of goods sold (COGS) is found to behave anti-sticky, and asset intensity has no significant effect towards the degree of costs stickiness.

Sticky Costs Behavior and Earnings Management

Brazilian Business Review, 2019

In the last decade, with the driving study by , research in managerial accounting have turned to the analysis of the phenomena that interfere in the asymmetric behavior of costs, mainly regarding the occurrence of changes in the levels of organizational activities. Weiss (2010) found that firms with asymmetric costs show a greater decline in earnings when costs increase more than sales growth, and when sales reduce and costs decrease to a lesser extent. Thus, costs are asymmetric when they increase more than the increase in sales and/or reduce to a lesser extent than the decrease in sales . According to the author, the behavior of costs is relevant for forecasting the results, and financial analysts estimate future costs based on the estimation of profits.

Cost Stickiness: Behavior and Factors

Proceedings of the Annual International Conference on Accounting Research (AICAR 2019), 2020

The objective of the study is to analyse the sticky cost behaviour and the factors that affect the cost stickiness on manufacturing companies listed in Indonesia Stock Exchange. The behavior of sticky cost in this study is found by analyzing selling, general and administrative costs which are categorized into several industry groups to observe the annual degree of sticky cost of each group of industry. In addition, the factors that affect the cost stickiness are capital intensity ratio, employee intensity ratio, incentive management as measured by free cash flow, and the control variable, firm size. The method used in this study is multiple linear regression analysis using the equation as measured by Anderson, Banker and Janakiraman. The sample is determined by purposive sampling method with the number of samples of 97 companies during the period 2014-2018. The results of this study are that sticky cost behavior occurs in all manufacturing companies in Indonesia. The largest and smallest degrees of sticky cost occur in animal feed and other sectors, which is as proof that the company of such sectors has inconsistent management in supervising and controlling selling, general and administrative costs. Furthermore, the results of the factors affecting the cost stickiness show that: 1) capital intensity ratio does not influence the degree of cost stickiness, 2) employee intensity ratio affects the degree of cost stickiness, 3) free cash flow does not affect the degree of cost stickiness, and 4) firm size of control variable affects the degree of cost stickiness.

Do Managers’ Deliberate Decisions Induce Sticky Costs?

SSRN Electronic Journal, 2010

This study explores motivations underlying managers' resource adjustments. We examine asymmetric costs resulting from current resource adjustments made intentionally to meet earnings targets under constraints set by past technology choices aimed to maximize firm value. Findings indicate that early technology choices induce cost stickiness in the absence of incentives to meet earnings targets. Costs exhibit greater stickiness in the presence of hard technological constraints than in the presence of weak technological constraints. However, resource adjustments made intentionally to meet earnings targets wash away, rather than induce, cost stickiness imposed by predetermined technological constraints, resulting in symmetric costs. The findings suggest that some deliberate decisions induce sticky costs while other deliberate decisions diminish sticky costs depending on the underlying motivations.

A note on cost stickiness: Some international comparisons

Management Accounting Research, 2006

Contemporary studies on cost behaviour find that costs increase more with activity increases than they decrease in response to equivalent activity decreases. This sticky cost behaviour contradicts the traditional model which assumes that costs behave symmetrically for activity increases and decreases. Using a sample of US, UK, French, and German firms, we find that operating costs are sticky in response to changes in revenues; operating costs increase, on average, by around 0.97% per 1% increase in revenues, but decrease by only 0.91% per 1% decrease in revenues. Costs of French and German firms are more sticky than costs of UK and US firms; we conjecture that this result is attributable to differences in systems of corporate governance and managerial oversight. Costs tend to be less sticky over longer time-horizons and when firms sustain larger drops in revenue. Firm-specific and industry characteristics also impact on levels of cost stickiness.

The Impacts of Cost Stickiness on the Profitability of Indonesian Firms

World Academy of Science, Engineering and Technology, International Journal of Social, Behavioral, Educational, Economic, Business and Industrial Engineering, 2014

The objectives of this study is to investigate the existence of the sticky cost behavior of firms listed in the Indonesia Stock Exchange (IDX) and to find evidence on the effects of sticky operating expenses (SG&A expenses) on profitability of firms. For the first objective, this study finds that the sticky cost behavior does exist. For the second objective, this study finds that the stickier the operating expenses the lesser future profitability of the firms. This study concludes that sticky cost affects negatively to the performance and, therefore, firms should include flexibility in designing the cost structure of their firms. Keywords—Operating Expenses, Profitability, SG&A, Sticky Costs, Indonesia Stock Exchange (IDX).