Discussion of Asymmetric Cost Behavior—Sticky Costs: Expenses versus Cash Flows

Abstract

This note highlights a subtle aspect of the asymmetric costs literature not covered in the comprehensive review by Banker and Byzalov (2014). Specifically, we test the assertion underlying this literature that reported expenses can serve as an appropriate proxy for estimating the asymmetry of economic costs. Our findings refute this assertion, indicating that reporting choices influence the estimated asymmetry level of reported expenses. As a result, reported expenses are significantly more asymmetric (sticky) than economic costs. This evidence suggests that reporting choices required by GAAP matter in estimating cost stickiness. These findings enrich Banker and Byzalov (2014) by suggesting that future asymmetric costs research should (1) look for alternative accounting variables with the potential to capture economic costs, and (2) explore how various types of reporting choices affect asymmetric cost behavior.

Cost stickness and earnings predictability: Evidence from

“…(3) & (4) it turns out the explanatory power are 94.77% for the cost of goods sold and 78.54% for the selling and general and administrative cost which are more better of its peers on the prior literature (e.g. Subramaniam & Weidenmier, 2003;He, et al, 2010;Bosch & Blandón, 2011;Shust & Weiss, 2014;Zanella, et al, 2015;Magheed, 2016;Pamplona, et al, 2016;Jang, et al, 2017) as shown below: In addition, it turns out that the significance of the coefficients of cost stickness in panel A where (β1 = 0.4190, t = 15.64 > 2) ،(β2 = -8.63, t = 10.21 >2) for the cost of goods sold, but it is not significant in panel B where (β1 = -0.0069, t = 0.17 < 2) ، (β2 = -0.0082, t = -0.11 < 2). Besides, it turns out significance of DecDummy*Log (SALESi,t/SALESi,t-1)*Aint ، DecDummy*Log (SALESi,t/SALESi,t-1)*Growth in Panel A where (β3 = -0.2299, t = 5.82 > 2) ،(β4 = -0.1125, t = 5.60 >2), which means that the cost stickness causes represented in asset intensity and economic growth lead to increasing the level of cost stickness for in the cost of goods sold which agree with the prior literature (e.g.…”

“…On the other side, the causes of cost stickness differed among the studies when they were explaining the cost stickness phenomenon because of the difference of resource adjustment motives. Consequently, I can determine the most important causes of cost stickness through prior literature in: asset intensity, employee intensity, resource structure, cost structure, operating efficiency in using capacity, strategy, inventory assets, debt intensity, employment laws, and the level of using capacity (See, Subramaniam & Weidenmier, 2003;He, et al, 2010;Bosch & Blandón, 2011;Shust & Weiss, 2014;Apostolos, et al, 2015;Bugeja, et al, 2015;Chae & Chung, 2015;Holzhacker, et al, 2015;Qin, et al, 2015;Zanella, et al, 2015;Magheed, 2016;Pamplona, et al, 2016;Jang, et al, 2017).…”

“…In addition one of its causes is the asset intensity which can be measured by the percentage of total assets to sales revenue (See: Anderson, et al, 2003;Subramaniam & Weidenmier, 2003;He, et al, 2010;Jang, et al, 2017). The second cause of cost stickness is the economic growth which can be measured by the difference between the revenue of the year t and year t-1 divided by revenue of year t (See: Shust & Weiss, 2014;Apostolos, et al, 2015;Bugeja, et al, 2015;Chae & Chung, 2015).…”

“…On the other side, the second hypothesis predict the effect of causes on the level of cost stickness for the cost of goods sold and the selling and general and administrative cost by developing the Anderson, et al (2003) model by the causes which are asset intensity and economic growth following numerous studies (See, Subramaniam & Weidenmier, 2003;He, et al, 2010;Bosch & Blandón, 2011;Shust & Weiss, 2014;Apostolos, et al, 2015;Bugeja, et al, 2015;Chae & Chung, 2015;Holzhacker, et al, 2015;Qin, et al, 2015;Zanella, et al, 2015;Magheed, 2016;Pamplona, et al, 2016;Jang, et al, 2017).…”

Operating cash flow asymmetric timeliness in Australia

“…() concentrate on earnings as the key input for measuring earnings asymmetric timeliness. If earnings are disaggregated into CFO and accruals, the findings of Shust and Weiss () suggest that it is less likely, but more accurate, to find asymmetry in the cash component than in the accrual component. Shust and Weiss extend Banker et al .…”