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Do managers forecast asymmetric cost behaviour?

Author

Listed:
  • Michael E Bradbury

    (School of Accountancy, Massey University, Albany, New Zealand)

  • Tom Scott

    (Accounting Department, Auckland University of Technology, Auckland, New Zealand)

Abstract

This article examines cost behaviour in a municipal (local government) setting and finds evidence of cost stickiness. We also find that costs are super-sticky as they increase even when revenues decrease. Municipals in New Zealand are required to produce forecasts, which allow us to investigate whether asymmetric cost behaviour is incorporated into forecasts. Forecast cost behaviour is found to be statistically indistinguishable from actual behaviour. In our tests, we control for asset intensity, employee intensity, expected demand, operating slack and past cost structure. The finding that the asymmetric relation between costs and revenues is incorporated into managerial forecasts suggests that cost stickiness is understood by managers rather than being merely a mechanistic outcome of cost structure. JEL Classification: M41, D24, H72

Suggested Citation

  • 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.
    • Handle: RePEc:sae:ausman:v:43:y:2018:i:4:p:538-554
    DOI: 10.1177/0312896218773136
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Asymmetric cost behaviour; management forecasts; municipal; operating costs; resource adjustment costs; sticky costs;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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