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Employment Protection Legislation, Adjustment Costs and Cross-Country Differences in Cost Behavior

Journal of Accounting and Economics, 55(1), 111-127, 2013.

Posted: 15 Aug 2011 Last revised: 23 Jul 2015

Rajiv D. Banker

Temple University - Department of Accounting

Dmitri Byzalov

Temple University - Fox School of Business and Management - Department of Accounting

Lei Tony Chen

affiliation not provided to SSRN

Date Written: August 27, 2012

Abstract

Central to the economic theory of sticky costs is the proposition that managers consider adjustment costs when changing resource levels. We test this proposition using employment protection legislation (EPL) provisions in different countries as a proxy for labor adjustment costs. Using a large sample of firms in 19 OECD countries during 1990-2008, we find that the degree of cost stickiness at the firm level varies with the strictness of the country-level EPL provisions. This finding supports the theory that cost stickiness reflects the deliberate resource commitment decisions of managers in the presence of adjustment costs.

Keywords: Sticky costs, Employment protection legislation, Labor adjustment costs

JEL Classification: M41

Suggested Citation

Banker, Rajiv D. and Byzalov, Dmitri and Chen, Lei Tony, Employment Protection Legislation, Adjustment Costs and Cross-Country Differences in Cost Behavior (August 27, 2012). Journal of Accounting and Economics, 55(1), 111-127, 2013. . Available at SSRN: https://ssrn.com/abstract=1909348 or http://dx.doi.org/10.2139/ssrn.1909348

Rajiv D. Banker

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States

Dmitri Byzalov (Contact Author)

Temple University - Fox School of Business and Management - Department of Accounting ( email )

Philadelphia, PA 19122
United States

HOME PAGE: http://astro.temple.edu/~dbyzalov/

Lei Tony Chen

affiliation not provided to SSRN ( email )

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