Rollover risk and managerial cost adjustment decisions

Li, Wulung; Zheng, Kenneth

doi:10.1111/acfi.12417

Cited by 18 publications

(9 citation statements)

References 52 publications

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“…In being able to exercise control over the majority of companies' resources, decision-makers play a significant role in cost management. When managers face cost decisions regarding resource allocation, they are more likely to retain the excess resource because adjustment costs are likely to be greater than costs of retaining excess resources if they perceive the resulting sales decline to be temporary (Dalla Via and Perego, 2014;Li and Zheng, 2018). The uncertainty of future sales changes is involved in consideration of cost adjustment.…”

Section: Introductionmentioning

confidence: 99%

Managerial risk appetite and asymmetry cost behavior: evidence from China

Qin

Chen

Zhang

2020

Accounting & Finance

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Managerial risk preferences have considerable impacts on a firm’s cost management through committed resource adjustment decisions. We investigate whether a firm’s cost behaviour is influenced by managers’ risk appetite and find that cost stickiness increases with managers’ risk‐seeking. The positive relationship between risk‐seeking and cost stickiness is weaker for firms with higher levels of manager capacity. We further find that the moderating effect of managerial capacity is more pronounced in non‐state‐owned enterprises, in less competitive industries, and in areas with lower degrees of marketisation. These results suggest that managers’ personal characteristics are key factors that affect sticky cost behaviour.

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Section: Introductionmentioning

confidence: 99%

Managerial risk appetite and asymmetry cost behavior: evidence from China

Qin

Chen

Zhang

2020

Accounting & Finance

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“…This is also in line with empirical findings from Weiss (2010) that analysts' earnings forecasts are less accurate for firms with sticky cost behaviour, implicitly hinting at our point that cost 2 Other examples for the limited literature on the association of cost stickiness with properties of financial accounting include Banker et al (2016) who investigate the confounding effect of sticky costs on conditional conservatism. Furthermore, Li and Zheng (2020) find a significant association between resource adjustment decisions and rollover risk.…”

Section: The Relationship Between Cost Stickiness and Income Smoothingmentioning

confidence: 86%

The impact of cost stickiness on financial reporting: evidence from income smoothing

Hartlieb

Loy

2022

Accounting & Finance

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This study investigates the impact of cost stickiness on income smoothing. Prior literature at the intersection between management and financial accounting has understood changes in cost behaviour as mere consequences of short‐term earnings management incentives. By considering income smoothing as the more complex earnings management strategy, we argue that resource adjustment strategies underlying cost behaviour might also have an impact on long‐term financial reporting choices. Specifically, asymmetric reactions of costs to sales changes should increase earnings volatility and thus restrict managers’ capabilities to report smooth income streams, which is supported by our empirical results. Additional tests reveal that cost stickiness primarily restricts opportunistic income smoothing and that the relationship depends on other factors such as the level of adjustment costs.

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“…Since the seminal study by Anderson et al [19], cost stickiness research has usually analyzed selling, general and administrative expenses (SG&A) [20][21][22][23] and total operating costs (TOP) [24,25]. Few studies have analyzed LC [26][27][28][29].…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Cost behavior in e-commerce firms

Argilés‐Bosch

García-Blandón

Ravenda³

2022

Electron Commer Res

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We conduct empirical research on the flexibility of operating costs of e-commerce firms. With an international sample of firms from different European countries, we find that e-commerce firms have a different cost structure than traditional retail firms, with a lower share of labor costs and cost of goods sold, but a higher share of other operating costs. While we find no significant different behavior in cost of goods sold and labor costs between the two types of firms, e-commerce firms are more flexible in adjusting other operating costs than traditional retail firms when activity decreases. Results are robust to different models, estimations methods and samples. The higher flexibility of e-commerce firms relies on other operating costs, but e-commerce creates qualified jobs with higher wages than traditional retail, with no additional exposure to labor uncertainty for employees.

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Rollover risk and managerial cost adjustment decisions

Cited by 18 publications

References 52 publications

Managerial risk appetite and asymmetry cost behavior: evidence from China

Managerial risk appetite and asymmetry cost behavior: evidence from China

The impact of cost stickiness on financial reporting: evidence from income smoothing

Cost behavior in e-commerce firms

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