Do Managers Forecast Asymmetric Cost Behaviour?

Posted: 10 Nov 2018

Date Written: July 30, 2018

Abstract

This article examines cost behaviour in a municipal (local government) setting and finds evidence of cost stickiness. We also find that costs are super-sticky as they increase even when revenues decrease. Municipals in New Zealand are required to produce forecasts, which allow us to investigate whether asymmetric cost behaviour is incorporated into forecasts. Forecast cost behaviour is found to be statistically indistinguishable from actual behaviour. In our tests, we control for asset intensity, employee intensity, expected demand, operating slack and past cost structure. The finding that the asymmetric relation between costs and revenues is incorporated into managerial forecasts suggests that cost stickiness is understood by managers rather than being merely a mechanistic outcome of cost structure.

Keywords: asymmetric cost behaviour, management forecasts, municipal, operating costs, resource adjustment costs, sticky costs

Suggested Citation

Bradbury, Michael E. and Scott, Tom, Do Managers Forecast Asymmetric Cost Behaviour? (July 30, 2018). Australian Journal of Management, Vol. 43, No. 4, 2018. Available at SSRN: https://ssrn.com/abstract=3269343

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

University of Auckland

Private Bag 92019
Auckland Mail Centre
Auckland, 1142
New Zealand

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