Does Capacity Utilization Affect the “Stickiness” of Cost?

Balakrishnan, Ramji; Petersen, Michael J.; Soderstrom, Naomi S.

doi:10.1177/0148558x0401900303

Cited by 196 publications

(154 citation statements)

References 4 publications

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“…I have the following predictions for equation (5). Consistent with the underlying premise of the sticky cost literature as proposed by ABJ, I predict that β 2 will be negative.…”

Section: Modelsupporting

confidence: 62%

“…Subramanian et al [4] extend this study and determine that the observed asymmetric adjustment of current SGA and current CGS only holds for large changes in current sales revenues. Balakrishnan et al [5] employ private data from physical therapy clinics to show that stickiness is influenced by the extent to which capacity constraints bind, whereas Balakrishnan et al [6], using department-level data from hospitals, find that cost stickiness is more strongly observable with respect to an organization's core competency. Calleja et al [7] investigate cost stickiness in an international setting and find results supportive of the existing literature.…”

Section: Introductionmentioning

confidence: 99%

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Model Misspecification in the Sticky Cost Literature

Coyne¹

2016

International JAR

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Beginning with Anderson et al., multiple studies have used a common model to investigate "sticky costs." This model regresses the log change in SG&A on the log change in revenues. However, Balakrishnan et al. assert that the finding of sticky costs is the result of model misspecification, and using an alternative model that regresses the change in costs scaled by lagged revenues on the changes in revenues scaled by lagged revenues, they find no evidence of sticky costs. I assert that their model also suffers from misspecification, and I propose a new model for measuring sticky costs that addresses misspecification in both prior models. Using this model, I again find evidence of sticky costs.

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“…I have the following predictions for equation (5). Consistent with the underlying premise of the sticky cost literature as proposed by ABJ, I predict that β 2 will be negative.…”

Section: Modelsupporting

confidence: 62%

Section: Introductionmentioning

confidence: 99%

Model Misspecification in the Sticky Cost Literature

Coyne¹

2016

International JAR

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“…Recent studies, however, provide evidence that costs increase more when sales rise than they decrease when sales fall by an equivalent amount, i.e., costs are sticky (Anderson, Banker, and Janakiraman [2003], Balakrishnan, Petersen, and Soderstrom [2004], Calleja, Steliaros, and Thomas [2006], , Banker, Byzalov, Ciftci and Mashruwala [2012], Banker, Basu, Byzalov and Chen [2012], Chen, Lu, and Sougiannis [2012], Kama and Weiss [2013]). Again, suppose actual sales exceed sales forecast by $100 in a favorable scenario, and sales are below sales forecast by $100 in an unfavorable scenario.…”

mentioning

confidence: 99%

Implications of Cost Behavior for Analysts' Earnings Forecasts

Ciftci

Mashruwala

Weiss

2015

Journal of Management Accounting Research

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Recent work in management accounting offers several novel insights into firms' cost behavior. This study explores whether financial analysts appropriately incorporate information on two types of cost behavior in predicting earnings—cost variability and cost stickiness. Since analysts' utilization of information is not directly observable, we model the process of earnings prediction to generate empirically testable hypotheses. The results indicate that analysts “converge to the average” in recognizing both cost variability and cost stickiness, resulting in substantial and systematic earnings forecast errors. Particularly, we find a clear pattern—inappropriate incorporation of available information on cost behavior in earnings forecasts leads to larger errors in unfavorable scenarios than in favorable ones. Overall, enhancing analysts' awareness of the expense side is likely to improve their earnings forecasts, mainly when sales turn to the worse. JEL Classifications: M41; M46; G12.

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“…My paper provides evidence that SGA costs behave differently for government contractors. Balakrishnan, Petersen, and Soderstrom (2004) provided evidence that the magnitude of the change matters. They showed that very large changes in costs lead to greater responsiveness (less stickiness) than smaller changes, and argued that transaction costs will dampen or remove small changes, but not affect larger changes.…”

Section: Acquisition Research Program Graduate School Of Business and Pmentioning

confidence: 99%

Federal Contractors and Sticky Costs

Hansen¹

2014

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Public reporting burden for the collection of information is estimated to average 1 hour per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Washington Headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington VA 22202-4302. Respondents should be aware that notwithstanding any other provision of law, no person shall be subject to a penalty for failing to comply with a collection of information if it does not display a currently valid OMB control number. The research presented in this report was supported by the Acquisition Research Program of the Graduate School of Business & Public Policy at the Naval Postgraduate School.To request defense acquisition research, to become a research sponsor, or to print additional copies of reports, please contact any of the staff listed on the Acquisition Research Program website (www.acquisitionresearch.net). Acquisition Research Program Graduate School of Business & Public Policy Naval Postgraduate School AbstractFederal contractors must deal with an exceptional amount of paperwork and bureaucracy relative to firms that deal only with the private sector. I investigate whether federal contractor's costs have different responses to revenue increases and decreases. I start by generating a set of federal focus firms that have a business unit name that incorporates the words federal, military, and defense. These firms have built their organizational structure around federal contracting. Because extra paperwork costs are likely to be part of the Selling, General, and Administrative (SGA) costs, I estimate a model of SGA sticky costs. I find that when revenues increase, federal focus firms have greater increases in SGA costs compared to controls. This increase is consistent with higher fulfillment costs for federal contracts. When revenues decrease, federal focus firms have a much lower decrease in SGA costs compared to controls. Federal focus firms have extremely sticky SGA costs. This stickiness is consistent with federal focus firms having higher fixed costs in their procurement systems.

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Does Capacity Utilization Affect the “Stickiness” of Cost?

Cited by 196 publications

References 4 publications

Model Misspecification in the Sticky Cost Literature

Model Misspecification in the Sticky Cost Literature

Implications of Cost Behavior for Analysts' Earnings Forecasts

Federal Contractors and Sticky Costs

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