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Cost stickiness: state of the art of research and implications

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  • Thomas Guenther
  • Anja Riehl
  • Richard Rößler

Abstract

Cost functions as the foundation of managerial decision making usually assume a linear cost function with fixed and variable costs. The latter are dominantly regarded as being identical for increasing and for decreasing activity levels. However, empirical research shows that the decline in costs is smaller for decreasing than the rise in costs for increasing activity levels for the same amount of change. This effect of asymmetric cost behaviour is called ‘cost stickiness’ or ‘cost remanence’. Our paper provides an overview of the causes and occurrences of cost stickiness. Furthermore, the empirical findings on cost stickiness using regression models with archival financial accounting data are reviewed and analysed. We explore different determinants of the effect of cost stickiness. A critical look at the findings and methods of empirical studies reveals the limitation of current research and opens new streams for further research. Finally, implications of the existence of sticky costs for management accounting research and practice are drawn. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • 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.
    • Handle: RePEc:spr:metrik:v:24:y:2014:i:4:p:301-318
    DOI: 10.1007/s00187-013-0176-0
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    References listed on IDEAS

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    1. Itay Kama & Dan Weiss, 2013. "Do Earnings Targets and Managerial Incentives Affect Sticky Costs?," Journal of Accounting Research, Wiley Blackwell, vol. 51(1), pages 201-224, March.
    2. 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.
    3. Clara Xiaoling Chen & Hai Lu & Theodore Sougiannis, 2012. "The Agency Problem, Corporate Governance, and the Asymmetrical Behavior of Selling, General, and Administrative Costs," Contemporary Accounting Research, John Wiley & Sons, vol. 29(1), pages 252-282, March.
    4. Lucian Bebchuk & Alma Cohen & Allen Ferrell, 2009. "What Matters in Corporate Governance?," Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 783-827, February.
    5. 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.
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    Cited by:

    1. 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.
    2. 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.
    3. 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).
    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. 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.
    6. Hakim Lyngstadaas, 2020. "Packages or systems? Working capital management and financial performance among listed U.S. manufacturing firms," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 31(4), pages 403-450, December.
    7. 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.
    8. 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.
    9. 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.

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