How Timely are Earnings When Costs are Sticky? Implications for the Link Between Conditional Conservatism and Cost Stickiness

Homburg, Carsten; Nasev, Julia

doi:10.2139/ssrn.1187082

Cited by 6 publications

(18 citation statements)

References 37 publications

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“…For example, ABJ, Subramaniam and Weidenmier (2003), Calleja et al, (2006), and Via and Perego, (2013) examined different specific firm-based measures of intensity: assets intensity, employees intensity, debt financing intensity, and working capital intensity. Other research examined corporate governance characteristics (e.g., Calleja et al, 2003;2006;Chen et al, 2008;2012), cost structure (Homburg & Nasev, 2008;Balakrishnan et al, 2010), technological constraints (Anderson & Lanen, 2007;Kama & Weis, 2010), conditional conservatism or good news or bad news factor (Ball & Shivakumar, 2005;Beaver & Ryan, 2005), industry (Subramaniam & Weidenmier, 2003;Anderson & Lanen, 2009;Via & Perego, (2013), agency theory and empire-building factors (Richardson, 2006;Chen et al, 2008;2012), and growth (e.g., Banker & Chen, 2006;Dierynck & Renders, 2009;He et al, 2010;Banker et al, 2011;Chen et al, 2012).…”

Section: Hypothesis Developmentmentioning

confidence: 99%

The Asymmetrical Behavior of Cost: Evidence from Jordan

Abu-Serdaneh¹

2014

IBR

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The study investigates whether different types of cost accounts are sticky or anti-sticky cost behavior using all listed Jordanian manufacturing companies during the period 2008-2012. Also, the study examines the effect of some explanatory factors on cost stickiness. These factors are asset intensity, debt intensity, free cash flow and growth. The study finds anti-sticky cost behavior for cost of goods sold, and selling expenses, while the cost behavior for SG&A and Administration costs is found to be symmetric, exhibiting neither stickiness nor anti-stickiness. The CGS model shows higher degree of stickiness for companies that have higher asset intensity, and less degree of stickiness for free cash flow. Also, less degree of stickiness is found for growth in the GDP declining period (pessimistic period) as in the case of Jordan. On the other hand, selling expenses model shows higher degree of stickiness for free cash flow and a less degree of stickiness is found for debt intensity.

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Section: Hypothesis Developmentmentioning

confidence: 99%

The Asymmetrical Behavior of Cost: Evidence from Jordan

Abu-Serdaneh¹

2014

IBR

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“…Few studies have given prominence to the linkage between cost stickiness and accounting conservatism. In this context, according to Homburg and Nasev (2008), cost stickiness is the manager's decision when the sale level decreases. Therefore, the project of cost stickiness is considered as risky.…”

Section: Cost Stickiness and Conditional Conservatismmentioning

confidence: 99%

“…We find holding costs of unused capacity and capacity releases, for example, wages and depreciation (Reimer, 2019). On the other hand, if managers choose to maintain unutilized resources for economic considerations such as adjustment costs of reducing capacity and ramping up capacity in case sales rebound, this choice is interpreted as a risky project (Homburg and Nasev, 2008). This choice can be made for the interest of managers or for the interest of the company.…”

Section: Cost Stickiness and Conditional Conservatismmentioning

confidence: 99%

“…Empirical studies on conditional conservatism document a piecewise linear relation between earnings and stock returns with more timely recognition of bad news than good news (Basu, 1997), branded as the asymmetric timeliness of earnings (Homburg and Nasev, 2008).…”

Section: Introductionmentioning

confidence: 99%

“…Referring to previous studies examine the relation between conditional conservatism and cost stickiness, Homburg and Nasev (2008) find that the sticky cost is more costly when firms include rules of conditional conservatism, using the sample of 44,361 firm-year observations during the period from 1988 to 2004. Banker et al (2016) also conclude that sales changes are associated with a significant decrease in asymmetric timeliness, having an effect on conditional conservatism, using US firms in the period from 1987 to 2007.…”

Section: Introductionmentioning

confidence: 99%

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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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Financing constraints and corporate investment decision: evidence from an emerging economy

Abdeljawad,

Abu Alia,

Demaidi

2023

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Purpose Existing theories on the determining factors of corporate investment decisions raise the importance of financial market imperfections in explaining investment behavior. Many factors have been proposed as drivers of investment, mainly in developed economies, while emerging countries have almost been neglected. The main purpose of this study is to examine the effect of financing constraints on the investment behavior of a small context, namely, Jordan, with an imperfect environment. Design/methodology/approach This study considers panel data regressions from the industrial companies traded at the Amman Stock Exchange with a total of 1,058 firm-year observations. Findings The results are able to demonstrate that business size, tangibility, market-to-book ratio, profitability, financial slack and leverage are major drivers of investment choices. The results support the importance of information asymmetry in explaining the investment behavior of firms. Nonetheless, the Q-theory is in place, as is firm agility. Practical implications Policies to reduce information asymmetry are immediately needed to help firms increase investments by providing them with access to training, technology and market information. They also should enhance the firms’ opportunities for growth. Moreover, they should make it easier for businesses to access financial slack, such as by improving access to credit and financial institutions. They also can work to improve the financial infrastructure to meet the financing needs of businesses. Finally, smaller businesses should be assisted by improving their ability to invest and grow. Originality/value To the best of the authors’ knowledge, this is one of the first studies, if any, to investigate this issue in a distinct environment. Despite the unique characteristics of Jordan, the findings are applicable to other countries that experience comparable political and economic circumstances because Jordan has traits common to many emerging nations.

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How Timely are Earnings When Costs are Sticky? Implications for the Link Between Conditional Conservatism and Cost Stickiness

Cited by 6 publications

References 37 publications

The Asymmetrical Behavior of Cost: Evidence from Jordan

The Asymmetrical Behavior of Cost: Evidence from Jordan

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

Financing constraints and corporate investment decision: evidence from an emerging economy

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