Asymmetries in Cost-Volume-Profit Relation: Cost Stickiness and Conditional Conservatism

Banker, Rajiv D.; Basu, Sudipta; Byzalov, Dmitri; Chen, Janice Y.S.

doi:10.2139/ssrn.2312179

Cited by 8 publications

(5 citation statements)

References 14 publications

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“…Therefore, these models are more appropriate when the objective is to examine the determinants of cost stickiness, whereas Weiss's measure is more useful in investigation of the effects of cost stickiness. Banker et al (2012aBanker et al ( , 2013b propose an alternative model of asymmetric cost behavior.…”

Section: Linear Abj Model For Earningsmentioning

confidence: 99%

“…Banker et al argue that because managers retain slack only for sales decreases, for the same level of current sales SALES i,t earnings are lower if sales decreased rather than increased to this level (α 2 < 0). 25 This alternative specification is useful when the researcher's objective is to incorporate an understanding of asymmetric cost behavior into models that are traditionally formulated in terms of the level of (rather than change in) earnings, such as the CVP model in cost accounting (Banker et al 2013b) or the Basu (1997) model in financial accounting (Banker et al 2012a).…”

Section: Levels Model For Earningsmentioning

confidence: 99%

“…including budgeting and analysis of variances(Banker et al 2013b), activity-based costing, performance scorecard and incentive compensation. Another important issue is how asymmetric cost behavior should affect pricing decisions.…”

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confidence: 99%

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Asymmetric Cost Behavior

Banker

Byzalov

2014

Journal of Management Accounting Research

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290

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We synthesize the growing literature on asymmetric cost behavior—a new way of thinking about costs and, by extension, earnings. While the traditional cost behavior model describes a mechanistic relation between activity and costs, this alternative view recognizes the primitives of cost behavior—resource adjustment costs and managerial decisions. These primitives give rise to “sticky” and “anti-sticky” costs, along with traditional “fixed” and “variable” costs as extreme cases. We formulate an integrated framework of asymmetric cost behavior and review the empirical evidence in support of this framework and its implications for both cost and financial accounting research. We clarify empirical issues and show that recent contrary claims about the validity of findings in the literature are unwarranted because of econometric errors. We present new comprehensive evidence from Global Compustat, which demonstrates that asymmetric cost behavior is a pervasive global phenomenon. We also discuss research opportunities.

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Section: Linear Abj Model For Earningsmentioning

confidence: 99%

Section: Levels Model For Earningsmentioning

confidence: 99%

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Asymmetric Cost Behavior

Banker

Byzalov

2014

Journal of Management Accounting Research

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290

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“…Finally, we find the managerial behavior such as managerial opportunism associated with agency problem (He et al, 2010;Chen et al, 2012;Namitha and Shijin, 2016), managerial optimism, which trains to expectations of increase in future demand (He et al, 2010;Cheung et al, 2016;Anderson et al, 2003), managerial overconfidence (Chen et al, 2013), mergers and CEO Hubris (Yang, 2015). There are also external factors such as economic growth (Anderson et al, 2003;Ibrahim, 2015) and countrylevel employment protection legislation (Banker et al, 2013a).…”

Section: Jfra 181mentioning

confidence: 75%

Sticky cost behavior and its implication on accounting conservatism: a cross-country study

Fourati

Ghorbel

Jarboui³

2020

JFRA

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Purpose This paper aims to investigate the impact of cost stickiness on conditional conservatism. Design/methodology/approach The research sample consists of listed companies from 18 countries, using stock market indices of the BRICS, MIST, North Africa, USA and EU over the period ranging from 1997 to 2015. The authors use the firm-fixed effects method in the estimation of the models. Findings The results provide evidence of the existence of cost stickiness and conditional conservatism in the international context, using the Banker et al. (2016) model. They also argue that the conditional conservatism model (Basu, 1997) is overstated because it does not control for cost stickiness. In additional analyses, the authors conclude that the association between cost stickiness and accounting conservatism changes across country groups and across industries. The authors also document that the employee intensity and free cash-flow, as cost stickiness determinants, remain significant in the model including accounting conservatism. Moreover, the findings show that sticky cost behavior distorts inferences about standard demand drivers of conservatism such as leverage and size. Originality/value The findings are interesting and provide a better understanding of cost stickiness and conditional conservatism, and the interaction between these two phenomena in the international context, across country groups and across industries. To the best of the author’s knowledge, the study is the first one including free cash flow as a proxy for agency problem in the full model combining conservatism and cost stickiness models (Banker et al., 2016).

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“…While many sticky cost models focus on the association between costs and sales changes, Banker et al (2013a) suggest a different model that concentrates on the association between the actual costs and sales levels. If the researcher intends to capture sticky cost behavior in equations that are expressed in terms of levels (not changes), this model may be preferable.…”

Section: Review Of the Cost Stickiness Modelsmentioning

confidence: 99%

Cost stickiness: A systematic literature review of 27 years of research and a future research agenda

Ibrahim

Ali

Aboelkheir

2022

Journal of International Accounting, Auditing and Taxation

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Asymmetries in Cost-Volume-Profit Relation: Cost Stickiness and Conditional Conservatism

Cited by 8 publications

References 14 publications

Asymmetric Cost Behavior

Asymmetric Cost Behavior

Sticky cost behavior and its implication on accounting conservatism: a cross-country study

Cost stickiness: A systematic literature review of 27 years of research and a future research agenda

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Asymmetries in Cost-Volume-Profit Relation: Cost Stickiness and Conditional Conservatism

Cited by 8 publications

References 14 publications

Asymmetric Cost Behavior

Asymmetric Cost Behavior

Sticky cost behavior and its implication on accounting conservatism: a cross-country study

Cost stickiness: A systematic literature review of 27 years of research and a future research agenda

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Product

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Cost stickiness: A systematic literature review of 27 years of research and a future research agenda