Do Accruals Earnings Management Constraints and Intellectual Capital Efficiency Trigger Asymmetric Cost Behaviour? Evidence from Australia

Abstract

This study examines whether accruals earnings management constraints and intellectual capital (IC) efficiency affect asymmetric cost behaviour by analysing data for the 1990 to 2016 period on firms listed on the Australian Securities Exchange. The analysis reveals that, on average, anti‐sticky cost behaviour occurs when firms have limited ability to engage in accrual earnings management to manipulate earnings in the current year. Further, IC efficiency – particularly human capital efficiency – increases the degree of cost stickiness. This study also finds that the degree of asymmetric cost behaviour is more pronounced in the post‐International Financial Reporting Standards (IFRS) period than in the pre‐IFRS period. The results suggest that the increased asymmetric cost behaviour in the post‐IFRS period derives from higher IC efficiency relative to the pre‐IFRS period. This study presents important implications for external stakeholders because they can consider the extent of earnings management constraints and the extent of firms’ IC efficiency as the determinants of asymmetric cost behaviour when assessing firms’ cost behaviour.

Sticky Cost Behavior: Evidence from BRICS+T Countries

“…In addition to the correlation between firm characteristics and sticky cost behavior, there are studies in literature conducted to test the relationship between economic growth, which is one of the macroeconomic indicators, and sticky cost behavior (Anderson et al, 2003;Abu-Serdaneh, 2014;Banker and Byzalov, 2014;Kim and Wang, 2014;Bu et al, 2015;Lee and Chiang, 2018;Yang, 2019). Cost stickiness is expected to rise at times of economic growth (Anderson et al, 2003;Banker and Byzalov, 2014;Kim and Wang, 2014;Bu et al, 2015: 10).…”

Trade credit and cost stickiness

“…The association of lower cost stickiness with more trade credits, however, provides only a partial picture of the cost behaviour of firms. For instance, Kama and Weiss (2013) and Yang (2019) show that managers cut back resources to meet earnings benchmarks (bad stickiness), whereas such cost cutting could also be a rational response to financial distress (good stickiness). As our arguments for the development of H1 above are based on the assertions that trade credit plays an external monitoring role, we posit that the hypothesised relationship in H1 is likely to be moderated by firm‐specific agency problem.…”

Attainment Discrepancy Level, Firm Resources Slack, and Sticky Cost

“…Several studies have examined sticky cost's determinant from various perspectives (Dierynck et al, 2012;Chen et al, 2012;Hartlieb, Loy, & Eierle, 2019;Kama & Weiss, 2013;Yang, 2019). Hartlieb et al (2019) used 165,995 company observations and proved evidence that central company managers with high social capital show significantly lower sticky costs, whereas social community capital prevents company managers from self-interest behavior so that the sticky cost level increases.…”