Economic growth and cost stickiness: evidence from Egypt

Abstract

Purpose – This paper aims to examine whether costs respond asymmetrically to demand change, and examine the influence of economic growth on cost stickiness, in the pre- and post-2008 financial crisis periods. Design/methodology/approach – This study uses multiple regression models to investigate the behavior of three costs: selling, general and administrative (SG & A), cost of goods sold (COGS) and operating costs (OCs) for the 2004-2011 period. Moreover, the study compares cost stickiness during the economic prosperity period (2006-2008) with cost stickiness during the economic recession period (2009-2011). Findings – The results reveal that SG & A increased by 0.38 per cent but decreased by 0.08 per cent, and COGS increased by 1.02 per cent but decreased by 0.57 per cent for a 1 per cent demand change, which proves cost stickiness. However, OC increased by 0.91 per cent, but decreased by 1.03 per cent for a 1 per cent demand change, which proves cost anti-stickiness. Moreover, SG & As were sticky during the prosperity period, but anti-sticky during the recession period. COGSs were sticky in both periods; however, the extent of cost stickiness is larger in the prosperity period. In contrast, OC were statistically insignificant in both periods. Originality/value – The results imply that managers should not use the same cost model all the time, as the economic growth fluctuations were found to affect the nature and extent of cost behavior. In addition, researchers should provide a modified cost model that considers the nonlinearity of correlation between costs and activity.

A Non-Linear Regression Modeling is used for Asymmetry Co-Integration and Managerial Economics in Iraqi Firms

“…The estimated value of 2 regression is equal to -0.025%, and -0.092%. Furthermore, Ibrahim [21] agrees with results found that the costs behavior is sticky in prosperity periods, and cost behavior is anti-sticky in recession periods. The estimated value of 2 regression is equal to -0.48%, and 0.20% during prosperity and recession respectively.…”

“…The paper has applied an established methodology to develop the costs and activity relationships [13], [20], managers understand and performance in different situations [11], [21].…”

Effects of economic growth in the behavior of sticky costs of companies belonging to BRICS countries

“…The literature provides empirical evidence that the costs do not always react in a linear way, as suggested by the theory of traditional costs, and the seminal study by Anderson et al, (2003), which showed the sticky cost behavior, known as sticky costs. Such research made emerge new empirical evidence, under which proved the existence of asymmetry in costs, as the findings from studies by Subramaniam and Weidenmier (2003), Calleja et al, (2006), He et al, (2010) Porporato and Werbin (2012), Borgert and , Balakrishnan et al, (2014), Ibrahim (2015) and Pamplona et al, (2016).…”

“…Such technique assumes that there is a relation between the costs and organizational activities, so that they are based on the estimate that the costs are changed in accordance with the proportion of changes in activities. Thus, the increase or decrease in activity should provide a symmetrical response in costs, i.e., an increase or decrease to be treated (Ibrahim, 2015).…”

Business Strategy, State-Owned Equity and Cost Stickiness: Evidence from Chinese Firms

“…Finally, as an extension of our findings, we need to speculate that cost stickiness can be directly and indirectly related to economic growth [64], political uncertainty [65], and credit risk [66]. Managers at internationalizing emerging market firms, particularly Chinese firms, should think over how these factors can be related to their institutional advantages.…”