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Cost Behaviour – An Empirical Investigation For Euro Area Countries

Author

Listed:
  • Diana Filipa Cruz Costa

    (Faculdade de Economia do Porto)

  • Samuel Cruz Alves Pereira

    (Faculdade de Economia do Porto)

  • Elísio Fernando Moreira Brandão

    (Faculdade de Economia do Porto)

Abstract

Costs are an important component for businesses as they affect the results and hence the firm position. Therefore, to understand how they vary with changes in output and what factors influence them is fundamental, not only for managers, but for all agents related to organizations. The traditional theory predicts the existence of two types of costs, the variables and the fixed ones. However, an alternative hypothesis has emerged that accounts for an empirical phenomenon, the "cost stickiness", and later the "anti-stickiness", in which the behaviour of costs is based on discretionary management decisions, under different circumstances. In this paper, we show that the operating costs of Euro Area companies are sticky, since in the face of a positive change in sales costs increase more than decrease when sales fall by the same amount. In addition, we have documented that this phenomenon is reinforced in countries where labour law is more rigid and those whose intervention by the Troika has been necessary, because these two aspects increase the adjustment costs.

Suggested Citation

  • Diana Filipa Cruz Costa & Samuel Cruz Alves Pereira & Elísio Fernando Moreira Brandão, 2018. "Cost Behaviour – An Empirical Investigation For Euro Area Countries," FEP Working Papers 609, Universidade do Porto, Faculdade de Economia do Porto.
  • Handle: RePEc:por:fepwps:609
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    References listed on IDEAS

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    More about this item

    Keywords

    cost behaviour; stickiness; anti-stickiness; deliberate resource commitment; adjustment costs;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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