Sticky cost behavior: evidence from Egypt

Abstract

The purpose of this paper is to provide further empirical evidence on the asymmetric cost behavior, cost stickiness, in an emerging country, Egypt, which lacks academic research on this subject. Design/methodology/approach This study uses multiple regression analysis to analyze the behavior of selling, general, and administrative costs (SG&A) and cost of goods sold (CGS) individually and jointly using total costs (TC) for the period 2004-2011 for Egyptian-listed firms. In addition, the study compares the cost behavior three years prior to and after the application of the corporate governance code in Egypt in 2007. Findings The results indicate that asymmetric cost behavior is common among Egyptian-listed firms as their SG&A, CGS, and TC were found to be sticky during the study period. The application of the corporate governance code in Egypt was found to affect the nature of SG&Athe behavior of these costs changed from sticky before the code to anti-sticky after the application of the code. Moreover, the code was found to affect the magnitude of stickiness of both CGS and TC. Originality/value Greater awareness about cost behavior is important for emerging markets such as Egypt in order to protect investors' interests and satisfy their information needs. To the best of our knowledge, this study is the first to provide evidence on cost stickiness in Egypt. Moreover, this study provides further evidence on the correlation between corporate governance and asymmetric cost behavior.

Financial Risk and Cost Stickiness: Evidence From Egypt

“…The mean value of annual COGS is LE 463,9 million(median= LE 142,3 million), which is lower than the mean value of $ 1,059.66 million reported by Subramaniam and Watson (2016) taking into account the exchange rates. The average value of COGS as a percentage of net sales is 77% (median=80%), which is higher than the ratios of 63.77 and 67 reported by Subramaniam and Watson (2016) and Ibrahim and Ezat (2017), respectively. Moreover, the average percentage of financial risk is about 67.8% (median =1), which reflects high level of financial risk as compared to 28.9% reported by Holzhacker et al (2015).…”

“…Recently, the imposition of cost linearity has been questioned by many studies (Malcom, 1991;Make and Rousch, 1994;Noreen andSoderstrom, 1994, 1997;Anderson et al 2003;Cohen et al,2017;Ibrahim and Ezat, 2017;Fourati et al,2020), which have found that cost does not respond symmetrically to changes in activity up and down. When cost increases more with an increase in activity level, than it declines with an equivalent decrease of activity level, that is, "Sticky" cost (Anderson et al, 2003).…”

“…The second motive is to achieve the target profits, which leads costs to behave as anti-sticky. Therefore, some studies aimed to examine the effect of corporate governance mechanisms on cost behavior, the studies suggest that corporate governance mechanisms decrease the degree of cost stickiness (Ezat, 2014;Xue and Hong, 2016;Ibrahim and Ezat, 2017;Ibrahim, 2018).…”

Sticky Costs and Expenses are not Alike: Mexican Reality

“…Recently, Ibrahim and Ezat (2017) indicated that asymmetric cost behavior is common among Egyptian-listed firms as their selling, general, and administrative cost (SG&A), cost of goods sold (CGS), and total costs (TC) were found to be sticky during the study period. Han et al (2019), proposed that cost stickiness is influenced by management's strategic choices.…”

السلوک غیر المتماثل للتکلفة وعلاقته بتمهید الدخل: دراسة تطبیقیة على الشرکات الصناعیة المصریة المسجلة فی سوق الأوراق المالیة

“…‫الباحثين‬ ‫اغمل‬ ‫اتفل‬ ‫وقد‬ (Anderson et al, 2003, p.47, Kama andWeiss, 2011, p.1 ;Guenther et al, 2014, p.203 et al, 2012, p.255-259;Banker and Byzalov, 2014, p.45;Magheed, 2016, p.68) ‫و‬ ‫ع‬ ‫ع‬ ‫ارل‬ ‫عة‬ ‫ع‬ ‫وكثاف‬ ‫عة‬ ‫ع‬ ‫العمال‬ ‫عة‬ ‫ع‬ ‫بكثاف‬ ‫عة‬ ‫ع‬ ‫الداخمي‬ ‫عل‬ ‫ع‬ ‫ام‬ ‫العو‬ ‫عل‬ ‫ع‬ ‫وتتعم‬ ‫عة‬ ‫ع‬ ‫الثابت‬ ‫عول‬ ‫ع‬ ‫ارل‬ ‫عة‬ ‫ع‬ ‫خال‬ ‫ول‬ ‫عركة‬ ‫ع‬ ‫الا‬ ‫عه‬ ‫ع‬ ‫إلي‬ ‫عع‬ ‫ع‬ ‫ترتم‬ ‫عذ‬ ‫ع‬ ‫ال‬ ‫عاع‬ ‫ع‬ ‫القط‬ ‫و‬ (Calleja et al, 2006, pp.127-140;Magheed, 2016, p.71 (Guenther et al,2014, p.304;Li and Zheng, 2017, p.283) . Xu et al, 2014, pp.359-363;Guenther et al ., 2014, pp.301-318;Bugeja et al, 2015, pp.248-261;Ibrahim and Ezat;2017, pp.16-34 Jen, 2017, pp.618-628;Mojdehi, 2017, pp.6-26;Silva et al ., 2019, pp.191-206) ‫عل‬ ‫تماث‬ ‫عدم‬ ‫ع‬ ‫عين‬ ‫ب‬ ‫عة‬ ‫ب‬ ‫مو‬ ‫عاط‬ ‫تب‬ ‫ار‬ ‫عة‬ ‫عالق‬ ‫عود‬ ‫و‬ ‫عج‬ ‫إل‬ ‫عبعض‬ ‫ال‬ ‫عار‬ ‫اا‬ ‫عا‬ ‫بيرم‬ ‫عدخل‬ ‫ال‬ ‫عد‬ ‫لتمهي‬ ‫ع‬ ‫اس‬ ‫و‬ ‫عوم‬ ‫(كمفه‬ ‫عاح‬ ‫ب‬ ‫ارر‬ ‫إدار‬ ‫عين‬ ‫وب‬ ‫عة‬ ‫التكمف‬ ‫عموك‬ ‫س‬ ‫عر‬ ‫خ‬ ‫ا‬ (Xue and Hong, 2016, pp.41-58;Li, 2018, p.597-606;Yang, 2019, pp.177-192 (Anderson et al, 2003, p.49 ;Chen et al ., 2012, pp. 255) .…”