Sticky Cost Behavior: Theory and Evidence
Rajiv D. Banker
Temple University - Department of Accounting
Temple University - Fox School of Business and Management
Jose M. Plehn-Dujowich
affiliation not provided to SSRN
August 16, 2010
AAA 2011 Management Accounting Section (MAS) Meeting Paper
We synthesize the rapidly-growing literature on sticky costs that provides an alternative model of cost behavior. This model postulates that many costs arise as a result of deliberate resource commitment decisions by forward-looking managers in the presence of adjustment costs, in contrast to the traditional textbook view that costs adjust mechanically with contemporaneous changes in activity. First, we present the theoretical framework of sticky costs, to develop the main empirical hypotheses. Next, we review the empirical evidence and find that it lends strong support to the sticky costs model. We also discuss recent papers that question the validity of the sticky costs approach, and show that their claims are not actually justified because of their unrealistic assumptions and flaws in their econometric analysis. When these problems are fixed, the analysis in these papers actually lends additional support to the sticky costs framework. Finally, we present new comprehensive empirical evidence that also supports the sticky cost framework for the Global Compustat data which includes both developed economies and emerging economies.
Number of Pages in PDF File: 74
Keywords: sticky costs
JEL Classification: M4
Date posted: August 17, 2010 ; Last revised: December 14, 2010
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