Do Managers Forecast Asymmetric Cost Behavior?

32 Pages Posted: 15 Apr 2014 Last revised: 23 Jun 2017

See all articles by Michael E. Bradbury

Michael E. Bradbury

Massey University

Tom Scott

Auckland University of Technology

Date Written: June 22, 2017

Abstract

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

Bradbury, Michael E. and Scott, Tom, Do Managers Forecast Asymmetric Cost Behavior? (June 22, 2017). Available at SSRN: https://ssrn.com/abstract=2424960 or http://dx.doi.org/10.2139/ssrn.2424960

Michael E. Bradbury (Contact Author)

Massey University ( email )

School of Accountancy
Private Bag 102 904
Auckland
New Zealand
64 9 414 0800 (Phone)
64 9 441 8133 (Fax)

Tom Scott

Auckland University of Technology ( email )

AUT City Campus
Private Bag 92006
Auckland, 1142
New Zealand

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