A contextual analysis of the impact of managerial expectations on asymmetric cost behavior

Chen, Jason V.; Kama, Itay; Lehavy, Reuven

doi:10.1007/s11142-019-09491-2

Cited by 57 publications

(53 citation statements)

References 46 publications

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“…Panel A, Column (1), reveals that COGS increases by 0.977 percent for each 1 percent increase in sales and COGS decreases by 0.965 percent for each 1 percent decrease in sales. This is consistent with Chen et al (2019) who find that, compared to SG&A costs, operating costs, which include COGS, are more responsive to fluctuations in sales and, thus, are considered more variable in nature than SG&A costs. Our variable of interest is β 5 : (

T C * D E C D U M * L N [\frac{S A L E_{t}}{S A L E_{t - 1}}]

).…”

Section: Empirical Results and Analysissupporting

confidence: 91%

Trade credit and cost stickiness

Costa

Habib

2020

Accounting & Finance

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Using a large sample of US data, we examine the relation between trade credit and cost behaviour and further investigate the moderating effects on this relation of agency problem, product market competition, and customer concentration. We find that firms using high levels of trade credit exhibit lower cost stickiness and this is prevalent in the high agency problem sub‐sample. In addition, in a non‐competitive market, where the agency problem arises owing to lack of competition, trade credit plays an external monitoring role by attenuating cost stickiness. However, high customer concentration curtails this monitoring ability.

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T C * D E C D U M * L N [\frac{S A L E_{t}}{S A L E_{t - 1}}]

).…”

Section: Empirical Results and Analysissupporting

confidence: 91%

Trade credit and cost stickiness

Costa

Habib

2020

Accounting & Finance

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“…Therefore, the cost response to sales increase is more than the cost response to the sales decrease causing stickiness in total costs. This result is consistent with the result of Chen et al (2019) who concluded that managerial optimism leads to stickiness in costs.…”

Section: The Existence Of Sticky Cost Behavior In the Egyptian Sectorssupporting

confidence: 92%

“…Consequently, the cost response to sales increase is less than the cost response to the sales decrease causing anti-stickiness in total costs. The prior explanation is in agreement with the interpretation of previous studies (e.g., Banker and Byzalov, 2014;Venieris et al, 2015), besides, it supports the result of Chen et al (2019) who found that managerial pessimism causes anti-stickiness in cost behavior.…”

Section: The Existence Of Sticky Cost Behavior In the Egyptian Sectorssupporting

confidence: 91%

Does Sticky Cost Behavior Affect Earnings Quality? Evidence From Egypt

Wahdan

Ahmed

Alsayed

2021

ijafr

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This paper seeks to extend the literature on cost behavior by providing additional evidence on sticky cost behavior in developing countries namely Egypt. Moreover, it aims to determine to what extent sticky cost behavior affects earnings quality. The paper depends on a sample consists of 38 listed firms in the Egyptian Exchange over the period from 2004 to 2017. The findings reveal that total costs respond asymmetrically to the equivalent change in sales in six of the nine examined sectors. Furthermore, both patterns of sticky cost behavior, stickiness and anti-stickiness, negatively affect earnings quality. Therefore, managers, investors, and managerial accountants should take into account sticky cost behavior when making their decisions. This study contributes to the stream of research that integrates managerial accounting with financial accounting by combining sticky cost behavior with earnings quality. In addition, it extends the line of research related to the impacts of sticky cost behavior. Moreover, it gives new evidence on sticky cost behavior and its impacts from one of emerging countries.

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“…We hypothesize that incentives to optimize intertemporal production costs, in turn, should result in asymmetric inventory investment. 5 Second, managers' expectations of future demand play a role in short-run resource adjustment and utilization decisions (Anderson et al 2003;Chen et al 2019). In response to a sales decline, managers with positive expectations of future demand can avoid congestion costs of scaling up production in the future by maintaining capacity and production levels (Pindyck 1982;Banker, Byzalov, and Plehn-Dujowich 2014).…”

Section: Asymmetric Inventory Investment Decisionsmentioning

confidence: 99%

Asymmetric Inventory Management and the Direction of Sales Changes*

Hwang

Jung

Lee

et al. 2020

Contemporary Accting Res

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We study manufacturing firms' asymmetric inventory investment in response to sales changes. Focusing on the costs of resource adjustment and stockout that likely differ in sales‐increasing and sales‐decreasing periods, we predict and find that inventory investment declines less during periods with sales decreases than it rises during periods with sales increases. We validate this claim by showing that managers' expectations of future demand and desire to avoid inventory stockouts are important determinants of this asymmetry. In addition, we find that asymmetric inventory investment provides useful information for predicting future sales growth, and that both managers' and analysts' sales forecasts are positively associated with the asymmetry. Lastly, we document that forecasts of future sales growth that incorporate asymmetric inventory investment are associated with lower absolute forecast errors than benchmark forecasts. Overall, we highlight the importance of inventory information in understanding managers' resource adjustment and utilization decisions that have implications for forecasting future demand. Our findings on asymmetric inventory management provide new insights to fundamental analysis based on inventory signals.

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A contextual analysis of the impact of managerial expectations on asymmetric cost behavior

Cited by 57 publications

References 46 publications

Trade credit and cost stickiness

Trade credit and cost stickiness

Does Sticky Cost Behavior Affect Earnings Quality? Evidence From Egypt

Asymmetric Inventory Management and the Direction of Sales Changes*

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