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Optimism and profit-based incentives in cost stickiness: an experimental study

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  • Komang Ayu Krisnadewi

    (Universitas Airlangga
    Universitas Udayana)

  • Noorlailie Soewarno

    (Universitas Airlangga)

Abstract

This study aims to examine whether managerial optimism and profit-based incentives affect cost behavior asymmetry, especially cost stickiness. Differ from previous literature on cost stickiness, the researchers use an experimental 2 × 2 between-within subjects factorial design. This design allows us to use data related to cost management specifically, not just in general term as in studies using archival data from public financial statements. Our study results reaffirm cost stickiness literature. This study focuses on experiments among accounting students who are not knowledgeable about cost behavior asymmetry. Even though our 71 student participants know only the symmetric cost behavior theory, when presented with a scenario related to sales prospects and information on profit-based incentives, the results of this study show otherwise. When participants are more optimistic and profit-based incentives have been achieved, the level of cost stickiness is also higher.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:jmgtco:v:32:y:2021:i:1:d:10.1007_s00187-020-00309-w
    DOI: 10.1007/s00187-020-00309-w
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    More about this item

    Keywords

    Asymmetric cost behavior; Cost stickiness; Experiment; Optimism; Profit-based incentives;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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