IDEAS home Printed from https://ideas.repec.org/a/spr/jmgtco/v29y2018i3d10.1007_s00187-018-0269-x.html
   My bibliography  Save this article

Asymmetric cost behavior in local public enterprises: exploring the public interest and striving for efficiency

Author

Listed:
  • Shohei Nagasawa

    (Tokyo Metropolitan University)

Abstract

Asymmetric cost behavior, which was first identified in Germany in the 1920s, has attracted the attention of researchers over the last two decades. Cost management is essential not only for commercial enterprises (CEs) but also for public organizations. Therefore, in this research, I focus on local public enterprises (LPEs), one type of public organization in Japan, and clarify their cost behavior. Then, taking the perspective of institutional theory, I compare LPEs with CEs. Because LPEs are required to behave according to the restrictions of LPE law, they are more vulnerable to institutional pressure. Specifically, LPEs have two normative institutional constraints: (1) efficiency and (2) the public interest (i.e., the responsibility to support people’s everyday lives). Therefore, LPEs must provide certain services even if they are unprofitable. To explore whether normative institutional pressure causes LPEs to be cost inefficient, I compare the cost behavior of these enterprises with that of CEs in five ways. I analyze (1) panel data covering 40 years, (2) the change over time, (3) the differences by industry type, (4) the relationship with population changes, and (5) the effect of political influence. I find that LPEs’ cost management is not necessarily cost inefficient; however, their ability to adjust costs may be lost in the future due to the influence of institutional constraints. I therefore assert that LPE administrators must constantly struggle to balance the institutional constraints of the public interest and efficiency since these factors require long-term, stable management.

Suggested Citation

  • Shohei Nagasawa, 2018. "Asymmetric cost behavior in local public enterprises: exploring the public interest and striving for efficiency," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 29(3), pages 225-273, December.
    • Handle: RePEc:spr:jmgtco:v:29:y:2018:i:3:d:10.1007_s00187-018-0269-x
    DOI: 10.1007/s00187-018-0269-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00187-018-0269-x
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s00187-018-0269-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bertero, Elisabetta & Rondi, Laura, 2000. "Financial pressure and the behaviour of public enterprises under soft and hard budget constraints: evidence from Italian panel data," Journal of Public Economics, Elsevier, vol. 75(1), pages 73-98, January.
    2. Thomas Guenther & Anja Riehl & Richard Rößler, 2014. "Cost stickiness: state of the art of research and implications," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 24(4), pages 301-318, February.
    3. Nee, Victor & Cao, Yang, 2005. "Market Transition and the Firm: Institutional Change and Income Inequality in Urban China," Management and Organization Review, Cambridge University Press, vol. 1(1), pages 23-56, March.
    4. Martin Holzhacker & Ranjani Krishnan & Matthias D. Mahlendorf, 2015. "The Impact of Changes in Regulation on Cost Behavior," Contemporary Accounting Research, John Wiley & Sons, vol. 32(2), pages 534-566, June.
    5. Giuseppe Grossi & Christoph Reichard, 2008. "Municipal corporatization in Germany and Italy," Public Management Review, Taylor & Francis Journals, vol. 10(5), pages 597-617, September.
    6. Mark C. Anderson & Rajiv D. Banker & Surya N. Janakiraman, 2003. "Are Selling, General, and Administrative Costs “Sticky”?," Journal of Accounting Research, Wiley Blackwell, vol. 41(1), pages 47-63, March.
    7. Germa Bel & Anton Costas, 2006. "Do Public Sector Reforms Get Rusty? Local Privatization in Spain," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 9(1), pages 1-24.
    8. Fernando Zanella & Peter Oyelere & Shahadut Hossain, 2015. "Are costs really sticky? Evidence from publicly listed companies in the UAE," Applied Economics, Taylor & Francis Journals, vol. 47(60), pages 6519-6528, December.
    9. Bart Voorn & Marieke L. van Genugten & Sandra van Thiel, 2017. "The efficiency and effectiveness of municipally owned corporations: a systematic review," Local Government Studies, Taylor & Francis Journals, vol. 43(5), pages 820-841, September.
    10. Eldenburg, Leslie & Krishnan, Ranjani, 2003. "Public versus private governance: a study of incentives and operational performance," Journal of Accounting and Economics, Elsevier, vol. 35(3), pages 377-404, August.
    11. Nicola Dalla Via & Paolo Perego & Steven Cahan, 2014. "Sticky cost behaviour: evidence from small and medium sized companies," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(3), pages 753-778, September.
    12. Domberger, Simon & Jensen, Paul, 1997. "Contracting Out by the Public Sector: Theory, Evidence, Prospects," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 13(4), pages 67-78, Winter.
    13. Sandra Cohen & Sotirios Karatzimas & Vassilios-Christos Naoum, 2017. "The sticky cost phenomenon at the local government level: empirical evidence from Greece," Journal of Applied Accounting Research, Emerald Group Publishing Limited, vol. 18(4), pages 445-463, November.
    14. Simon Domberger & Stephen Rimmer, 1994. "Competitive Tendering and Contracting in the Public Sector: A Survey," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 1(3), pages 439-453.
    15. Eldenburg, Leslie & Hermalin, Benjamin E. & Weisbach, Michael S. & Wosinska, Marta, 2004. "Governance, performance objectives and organizational form: evidence from hospitals," Journal of Corporate Finance, Elsevier, vol. 10(4), pages 527-548, September.
    16. Leslie G. Eldenburg & Ranjani Krishnan, 2008. "The Influence of Ownership on Accounting Information Expenditures," Contemporary Accounting Research, John Wiley & Sons, vol. 25(3), pages 739-772, September.
    17. Josep Mª Argilés Bosch & Josep García Blandón, 2011. "The influence of size on cost behaviour associated with tactical and operational flexibility," Estudios de Economia, University of Chile, Department of Economics, vol. 38(2 Year 20), pages 419-455, December.
    18. Collin, Sven-Olof Yrjö & Tagesson, Torbjörn & Andersson, Anette & Cato, Joosefin & Hansson, Karin, 2009. "Explaining the choice of accounting standards in municipal corporations: Positive accounting theory and institutional theory as competitive or concurrent theories," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 20(2), pages 141-174.
    19. Banker, Rajiv D. & Byzalov, Dmitri & Chen, Lei (Tony), 2013. "Employment protection legislation, adjustment costs and cross-country differences in cost behavior," Journal of Accounting and Economics, Elsevier, vol. 55(1), pages 111-127.
    20. Daoping (Steven) He & Jenny Teruya & Takashi Shimizu, 2010. "Sticky Selling, General, And Administrative Cost Behavior And Its Changes In Japan," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 4(4), pages 1-10.
    21. Ramji Balakrishnan & Leslie Eldenburg & Ranjani Krishnan & Naomi Soderstrom, 2010. "The Influence of Institutional Constraints on Outsourcing," Journal of Accounting Research, Wiley Blackwell, vol. 48(4), pages 767-794, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Komang Ayu Krisnadewi & Noorlailie Soewarno, 2021. "Optimism and profit-based incentives in cost stickiness: an experimental study," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 32(1), pages 7-31, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ibrahim, Awad Elsayed Awad & Ali, Hesham & Aboelkheir, Heba, 2022. "Cost stickiness: A systematic literature review of 27 years of research and a future research agenda," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 46(C).
    2. Cristiana Cattaneo & Gaia Bassani, 2020. "Sticky costs: le determinanti e le sfide per manager e accademici," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2020(Suppl. 1), pages 103-126.
    3. Hakan Özkaya, 2021. "Sticky cost behavior: evidence from small and medium sized enterprises in Turkey," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 11(2), pages 349-369, June.
    4. Komang Ayu Krisnadewi & Noorlailie Soewarno, 2021. "Optimism and profit-based incentives in cost stickiness: an experimental study," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 32(1), pages 7-31, March.
    5. Sven Hartlieb & Thomas R. Loy, 2022. "The impact of cost stickiness on financial reporting: evidence from income smoothing," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3913-3950, September.
    6. Mabel D. Costa & Ahsan Habib & Md. Borhan Uddin Bhuiyan, 2021. "Financial constraints and asymmetric cost behavior," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 32(1), pages 33-83, March.
    7. Joanna Golden & Kenneth Zheng, 2022. "Cost management and corporate payout decisions," Review of Quantitative Finance and Accounting, Springer, vol. 58(3), pages 911-938, April.
    8. Rhys Andrews, 2022. "Organizational Publicness and Mortality: Explaining the Dissolution of Local Authority Companies," Public Management Review, Taylor & Francis Journals, vol. 24(3), pages 350-371, March.
    9. Germà Bel & Xavier Fageda, 2009. "Factors explaining local privatization: a meta-regression analysis," Public Choice, Springer, vol. 139(1), pages 105-119, April.
    10. Thomas R. Loy & Sven Hartlieb, 2018. "Have estimates of cost stickiness changed across listing cohorts?," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 29(2), pages 161-181, August.
    11. Zhu, Bo & Chen, Yuguo & Cheng, Jia-Chi, 2023. "Business cycle and cost structure," International Review of Financial Analysis, Elsevier, vol. 89(C).
    12. Zhu, Bo & Yuan, Menglin, 2022. "The business cycle and cost structure’s adjustment speed," Research in International Business and Finance, Elsevier, vol. 62(C).
    13. Mabel D. Costa & Ahsan Habib, 2021. "Trade credit and cost stickiness," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 1139-1179, March.
    14. Mohammad Mahdi Rounaghi & Hajer Jarrar & Leo-Paul Dana, 2021. "Implementation of strategic cost management in manufacturing companies: overcoming costs stickiness and increasing corporate sustainability," Future Business Journal, Springer, vol. 7(1), pages 1-8, December.
    15. Zhaoyang Gu & Song Tang & Donghui Wu, 2020. "The Political Economy of Labor Employment Decisions: Evidence from China," Management Science, INFORMS, vol. 66(10), pages 4703-4725, October.
    16. Michael E Bradbury & Tom Scott, 2018. "Do managers forecast asymmetric cost behaviour?," Australian Journal of Management, Australian School of Business, vol. 43(4), pages 538-554, November.
    17. Melvin A. Lamboy-Ruiz & James N. Cannon & Olena V. Watanabe, 2019. "Does State Community Benefits Regulation Influence Charity Care and Operational Efficiency in U.S. Non-profit Hospitals?," Journal of Business Ethics, Springer, vol. 158(2), pages 441-465, August.
    18. David Aboody & Shai Levi & Dan Weiss, 2018. "Managerial incentives, options, and cost-structure choices," Review of Accounting Studies, Springer, vol. 23(2), pages 422-451, June.
    19. Josep Mª. Argilés‐Bosch & Josep Garcia‐Blandón & Diego Ravenda, 2023. "Empirical analysis of the relationship between labour cost stickiness and labour reforms in Spain," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(S1), pages 1187-1221, April.
    20. Wu-Lung Li & Kenneth Zheng, 2017. "Product market competition and cost stickiness," Review of Quantitative Finance and Accounting, Springer, vol. 49(2), pages 283-313, August.

    More about this item

    Keywords

    Local public enterprises; Sticky costs; Anti-sticky costs; Asymmetric cost behavior; Public interest; Efficiency; Institutional constraints;
    All these keywords.

    JEL classification:

    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jmgtco:v:29:y:2018:i:3:d:10.1007_s00187-018-0269-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.