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Are costs really sticky? Evidence from publicly listed companies in the UAE

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  • Fernando Zanella
  • Peter Oyelere
  • Shahadut Hossain

Abstract

This article measures the degree of adjustment between operating revenues and costs for publicly listed companies in the United Arab Emirates (UAE). Traditional cost models assume that variable costs change proportionally in response to an upward or downward fluctuation in demand. However, in recent years, such an assumption has been questioned by a variety of papers from the economics and accounting fields. Typically, cost stickiness is defined as costs decreasing by less than 1% when sales decrease by 1%, while reacting closer to the proportion of change when sales increase. This study, unlike the vast majority of the literature, did not find cost stickiness in the UAE after using panel data regression analysis. The main explanation is that UAE has mostly expatriate labour force that does not have the typical benefits of employment protection legislation (EPL) available in other national jurisdictions. EPL is a main reason that costs adjustments during decreasing sales is curbed due to the associated costs of firing employees.

Suggested Citation

  • 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.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:60:p:6519-6528
    DOI: 10.1080/00036846.2015.1080807
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    References listed on IDEAS

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    Cited by:

    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. Jian Xu & Jae Woo Sim, 2017. "Are costs really sticky and biased? Evidence from manufacturing listed companies in China," Applied Economics, Taylor & Francis Journals, vol. 49(55), pages 5601-5613, November.
    4. 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.
    5. 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.

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