Managerial Overconfidence and Cost Stickiness

Chen, Clara Xiaoling; Gores, Timo; Nasev, Julia

doi:10.2139/ssrn.2208622

Cited by 52 publications

(40 citation statements)

References 26 publications

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“…Such excessive optimism would increase cost stickiness. Empirical evidence indicates that both rational and irrational managerial expectations play a key role in asymmetric cost behaviour (Chen, Gores, & Nasev, 2013). China is known as one of the fastest growing economies among countries in the world and as the second largest economy valued by using Purchasing Power Parity (Allen, Qian, & Qian, 2005).…”

Section: Managerial Expectationsmentioning

confidence: 99%

Implications of asymmetric cost behaviour for analysing financial reports of companies in China

Cheng

Banker

2015

China Journal of Accounting Studies

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Asymmetric cost behaviour analysis emphasises the role of deliberate managerial decisions. In this paper, we find that asymmetric cost behaviour is also a pervasive phenomenon in China. Specifically, SOEs have more cost stickiness than non-SOEs and companies with executive shareholding have more cost stickiness than those without executive shareholding. Secondly, we find that the cost variability and cost stickiness model (separate earnings into cost variability with sales revenue and stickiness in costs with sales declines) provides substantial improvement in forecasting accuracy over other models using only the line items in financial statements. Finally, we find that both conditional conservatism and cost stickiness influence the linear relation between earnings and performance measures. We suggest that future empirical tests on conditional conservatism should control for the potential confounding effect of sticky costs. Our results from Chinese firms provide evidence on the accuracy of earnings forecast and conservatism, and contain important implications for both cost accounting research and financial accounting research.

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Section: Managerial Expectationsmentioning

confidence: 99%

Implications of asymmetric cost behaviour for analysing financial reports of companies in China

Cheng

Banker

2015

China Journal of Accounting Studies

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“…Another factors that watched Chen, Gores and Nasev (2013) as the cause of sticky costs was excessive confidence of managers. The authors assumed that too confident manager have a greater overestimation of future demand and therefore managers are the ones who usually do not reduce costs when demand decreases.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Unfortunately, no cost reduction in a situation of demand declining resulted in enterprises into emergence of sticky costs. (Chen et al, 2013) Differences in sticky cost between different countries were examined in the study of the authors Calleja, Steliarosa and Thomas (2006). They used the sample of American, English, French and German enterprises to detect differences between various countries.…”

Section: Literature Reviewmentioning

confidence: 99%

Analysis of overhead cost behavior: case study on decision-making approach

Новак

Dvorský

Popesko

et al. 2017

Journal of International Studies

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Abstract. Cost management is one of the most significant issues in company performance and company financial management which any enterprise has to solve as in the periods of declines of sales revenues, as well as during their growth. In this study we designed and tested several regression models that could be suitable for cost behavior prediction and subsequent decision-making based on these predictions. We used multiple linear regression models with a point estimate and with interval estimate of the model parameters. Comparison of regression models of cost behavior and their reliability was carried out due to the quality of the data collected for the case of basic and adjusted data. The overheads were divided into several groups of relevant costs and their dependences were examined on different factors other than only the production volume using the correlation matrix. From the results of the transformed model we believe that asymmetric cost behavior is affected by asymmetric behavior of the chosen factors. As the final one was intended the model representing the change in costs in time shifting about one-month period. This model can be used for examining costs in time shift by a short period (e.g., months) and thus it is possible to prove Petr Novák, Ján Dvorský, Boris Popesko, Jiří StrouhalAnalysis of overhead cost behavior: case study on decisionmaking approach 75 cost asymmetric behavior called "sticky costs". We used the model adjusted in accordance with Anderson et al. (2003). and we kept the model clearly transformed and assembled so that there remained only those variables that had a statistically significant effect on the dependent variable. The limitations of these models were also defined. Finally, graphical analyses of deviations were performed to find similarities in cost through cost centres and through the examined periods.

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“…Since construction of ΔLnINVAS and DEC*ΔLnINVAS variables using partial sum methods introduce non-linearity to the adjustment process, Chen et al [26] and Chen et al [14] call specification (2) as the non-linear regression model.…”

Section:  mentioning

confidence: 99%

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

Azeez¹,

Han²,

Mahmood³

2017

ijacsa

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Abstract-This paper analyzes the cost asymmetry through managerial expectations in a nonlinear regression function. Two development determinants, asymmetry co-integration and managerial expectations are also considered. The results revealed that managerial expectation had an impact on the wholesale cost asymmetry response. The managerial optimism is pronounced that show cost asymmetry response for sales, and inventory assets increased higher than decreased with the changing of the expectation basic coefficient and the values of contract parameters. Finally, the impacts of the managerial expectations, cost basic coefficient, and values of the contract parameters are analyzed for illustrating the results of the proposed nonlinear models with the help of numerical experiments. The research examined the short-run and the long-run effects of asymmetry co-integration and managerial expectation changes on the cost behavior in Iraq using the nonlinear regression function.

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Managerial Overconfidence and Cost Stickiness

Cited by 52 publications

References 26 publications

Implications of asymmetric cost behaviour for analysing financial reports of companies in China

Implications of asymmetric cost behaviour for analysing financial reports of companies in China

Analysis of overhead cost behavior: case study on decision-making approach

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

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