Asymmetric Cost Behaviour and Earnings Quality in the European Context

28 Pages Posted: 6 Jan 2021

See all articles by Apostolos Ballas

Apostolos Ballas

Athens University of Economics and Business - Department of Accounting and Finance

Dimosthenis L. Hevas

Athens University of Economics and Business - Department of Accounting and Finance

Nikolaos I. Karampinis

Athens University of Economics and Business - Department of Accounting and Finance

Orestes Vlismas

Athens University of Economics and Business - Department of Accounting and Finance

Date Written: November 12, 2020

Abstract

This study investigates the relationship of asymmetric cost behaviour with earnings quality for European listed firms. We employ a sample that consists of 11,416 firm-year observations of European listed firms over the period 2005-2019 to explore the relationship of asymmetric cost behaviour with (i) the managerial incentives to meet earnings targets, (ii) conditional conservatism, (iii) the level of operating accruals, and (iv) earnings smoothing. Our empirical evidence indicates that the presence of managerial incentives to meet earnings targets decreases the intensity of SG&A cost stickiness. We also document that asymmetric timeliness estimates in the conditional conservatism estimation models have an upward bias unless these models do not control for asymmetric cost behaviour. Finally, it seems that the levels of operating accruals and earnings smoothing are more sensitive to sales decreases than sales increases.

Keywords: Asymmetric Cost behaviour, Earnings Quality, Conditional Conservatism, Earnings Smoothing, Operating Accruals

JEL Classification: L10, M10, M41

Suggested Citation

Ballas, Apostolos A. and Hevas, Dimosthenis (Dimosthenes) L. and Karampinis, Nikolaos I. and Vlismas, Orestes, Asymmetric Cost Behaviour and Earnings Quality in the European Context (November 12, 2020). Available at SSRN: https://ssrn.com/abstract=3729539 or http://dx.doi.org/10.2139/ssrn.3729539

Apostolos A. Ballas (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
Athens, GR-10434
Greece
+302108203463 (Phone)

Dimosthenis (Dimosthenes) L. Hevas

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

Nikolaos I. Karampinis

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

Orestes Vlismas

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens, Athens
Greece

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