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How well do analysts really understand asymmetric cost behaviour?

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  • Minzhi Wu
  • Mark Wilson

Abstract

Prior literature suggests analysts have a very poor understanding of asymmetric cost behaviour (‘ACB’) and ‘converge to the average’ when incorporating this behaviour in forecasts. However, we show that the extent of bias arising from sticky costs is greater for firms (‘Defenders’) employing strategic approaches for which ACB is less commonly observed, and that ACB typically has no association with forecast errors for firms who typically demonstrate high degrees of cost stickiness (‘Prospectors’). Our findings are consistent with analysts having a meaningful understanding of ACB and cross‐sectional differences in the likelihood of its incidence.

Suggested Citation

  • Minzhi Wu & Mark Wilson, 2022. "How well do analysts really understand asymmetric cost behaviour?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3951-3985, September.
    • Handle: RePEc:bla:acctfi:v:62:y:2022:i:3:p:3951-3985
    DOI: 10.1111/acfi.12911
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    References listed on IDEAS

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