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The Impact of Changes in Regulation on Cost Behavior

Contemporary accounting research, 2015-06, Vol.32 (2), p.534-566 [Peer Reviewed Journal]

CAAA ;Copyright Canadian Academic Accounting Association Summer 2015 ;ISSN: 0823-9150 ;EISSN: 1911-3846 ;DOI: 10.1111/1911-3846.12082

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  • Title:
    The Impact of Changes in Regulation on Cost Behavior
  • Author: Holzhacker, Martin ; Krishnan, Ranjani ; Mahlendorf, Matthias D.
  • Subjects: Accounting ; Asymmetry ; Cost reduction ; Economic theory ; Elasticity ; Fixed prices ; Ownership ; Price regulations
  • Is Part Of: Contemporary accounting research, 2015-06, Vol.32 (2), p.534-566
  • Description: This study examines the effect of fixed-price regulation on cost elasticity and cost asymmetry. Using economic theory, we posit that a change to fixed-price regulation imposes cost pressures and increases operating risk because the firm's revenue function is much less related to the cost function.1 In response, firms will make two broad changes to their cost structures. The first change is to increase cost elasticity, which is the percentage change in cost for each percentage change in volume. The second change is to decrease the extent of cost asymmetry, that is, the greater increase in cost when there is an increase in volume relative to the decrease in cost when there is a decrease in volume (Anderson, Banker, and Janakiraman 2003).2 We further explore the effect of ownership on firms' adjustments to cost elasticity and cost asymmetry in response to price regulation.
  • Publisher: Toronto: Blackwell Publishing Ltd
  • Language: English
  • Identifier: ISSN: 0823-9150
    EISSN: 1911-3846
    DOI: 10.1111/1911-3846.12082
  • Source: Alma/SFX Local Collection
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