Do Managers Forecast Asymmetric Cost Behavior?
32 Pages Posted: 15 Apr 2014 Last revised: 23 Jun 2017
Date Written: June 22, 2017
This paper examines cost behaviour in the municipal setting and finds evidence of cost stickiness. Furthermore, as municipals in New Zealand are required to produce forecasts, it allows us to investigate whether asymmetric cost behaviour is incorporated into forecasts. We document an asymmetric association between actual costs and revenues. Furthermore, costs are super-sticky as they increase even when revenues decrease. Cost stickiness remains after controlling for cost structure. Forecast cost behaviour is statistically indistinguishable from actual behaviour. We contribute to the cost stickiness literature by extending it to a municipal setting and showing the asymmetric relation between costs and revenues is incorporated in managerial forecasts.
Keywords: Cost stickiness; Cost behavior; Forecasts; Municipal, Local Government
JEL Classification: M41, D24, H70
Suggested Citation: Suggested Citation