The Moderating Effect of Prior Sales Changes on Asymmetric Cost Behavior

36 Pages Posted: 17 May 2006 Last revised: 23 Jul 2015

See all articles by Rajiv D. Banker

Rajiv D. Banker

Temple University - Department of Accounting

Dmitri Byzalov

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

Mustafa Ciftci

American University of Sharjah - School of Business and Management

Raj Mashruwala

University of Calgary

Date Written: January 9, 2014

Abstract

Recent research documents the empirical phenomenon of “sticky costs” and attributes it to a theory of deliberate managerial decisions in the presence of adjustment costs. We refine this theoretical explanation and show that it gives rise to a more complex pattern of asymmetric cost behavior that combines two opposing processes: cost stickiness conditional on a prior sales increase and cost anti-stickiness conditional on a prior sales decrease. These predictions reflect the structure of optimal decisions with adjustment costs and the impact of prior sales changes on managers’ expectations about future sales changes. Empirical estimates for Compustat data support our hypotheses. We further verify our predictions using additional proxies for managers’ expectations, and show that our model offers important new insights.

Keywords: optimism, pessimism, cost stickiness, anti-stickiness, cost behavior

JEL Classification: D24, M41

Suggested Citation

Banker, Rajiv D. and Byzalov, Dmitri and Ciftci, Mustafa and Mashruwala, Raj, The Moderating Effect of Prior Sales Changes on Asymmetric Cost Behavior (January 9, 2014). Journal of Management Accounting Research, 26(2), 221-242, 2014. Available at SSRN: https://ssrn.com/abstract=902546 or http://dx.doi.org/10.2139/ssrn.902546

Rajiv D. Banker

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States

Dmitri Byzalov

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

Philadelphia, PA 19122
United States

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

Mustafa Ciftci (Contact Author)

American University of Sharjah - School of Business and Management ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

Raj Mashruwala

University of Calgary ( email )

2500 University Drive NW
Calgary, Alberta T2N 1N4
Canada
403-220-4332 (Phone)

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