74 Pages Posted: 17 Aug 2010 Last revised: 14 Dec 2010
Date Written: August 16, 2010
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.
Keywords: sticky costs
JEL Classification: M4
Suggested Citation: Suggested Citation
Banker, Rajiv D. and Byzalov, Dmitri and Plehn-Dujowich, Jose M., Sticky Cost Behavior: Theory and Evidence (August 16, 2010). AAA 2011 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1659493 or http://dx.doi.org/10.2139/ssrn.1659493