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Cost Structure and Sticky Costs

Ramji Balakrishnan

University of Iowa - Department of Accounting

Eva Labro

University of North Carolina Kenan-Flagler Business School

Naomi S. Soderstrom

University of Colorado at Boulder; University of Melbourne

June 30, 2011

Beginning with Anderson, Banker, and Janakiraman (2003), a rapidly growing literature attributes the short-run asymmetric cost response to activity changes (i.e., sticky costs) as result-ing from short-run managerial choices. We show that past decisions on cost structure, which de-termine the magnitude of costs controllable in the short-term, induce non-stationarity in the elas-ticity of Sales, General and Administrative costs, affecting the interpretation of estimates from the standard specification used in the literature. We develop suggestions for how future research might control for the effects of cost structure. Empirically, we find that cost structure confounds results usually interpreted as reflecting short-run managerial actions. Further, after adjusting for the effects of fixed costs, we find that the results are unstable across alternate sub-samples. Our results provide evidence that long-run cost structure decisions impact our ability to detect short-term cost management decisions.

Number of Pages in PDF File: 33

Keywords: Sticky costs, cost structure, simulations

JEL Classification: M41, L42

working papers series

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Date posted: March 3, 2010 ; Last revised: September 19, 2012

Suggested Citation

Balakrishnan, Ramji and Labro, Eva and Soderstrom, Naomi S., Cost Structure and Sticky Costs (June 30, 2011). Available at SSRN: http://ssrn.com/abstract=1562726 or http://dx.doi.org/10.2139/ssrn.1562726

Contact Information

Ramji Balakrishnan (Contact Author)
University of Iowa - Department of Accounting ( email )
108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0958 (Phone)
319-335-1956 (Fax)
Eva Labro
University of North Carolina Kenan-Flagler Business School ( email )
McColl Building
Chapel Hill, NC 27599-3490
United States
(919) 962-5747 (Phone)

Naomi S. Soderstrom
University of Colorado at Boulder ( email )
419 UCB
Boulder, CO 80309-0419
United States
University of Melbourne ( email )
Melbourne, 3010
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References:  41
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