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Cost Stickiness in Australia: Characteristics and Determinants

Australian accounting review, 2015-09, Vol.25 (3), p.248-261 [Peer Reviewed Journal]

2014 CPA Australia ;Copyright Australian Society of Certified Practising Accountants Sep 2015 ;ISSN: 1035-6908 ;EISSN: 1835-2561 ;DOI: 10.1111/auar.12066

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  • Title:
    Cost Stickiness in Australia: Characteristics and Determinants
  • Author: Bugeja, Martin ; Lu, Meiting ; Shan, Yaowen
  • Subjects: Business costs ; Construction industry ; Costs ; International Financial Reporting Standards ; Organizational behavior ; Retailing industry ; Studies
  • Is Part Of: Australian accounting review, 2015-09, Vol.25 (3), p.248-261
  • Description: This study presents empirical evidence on cost stickiness using a large sample of Australian listed firms from 1990–2010. We find cost behaviour in Australian firms is sticky on average, with a lower degree of stickiness than in United States firms. Costs increase by 0.885% with a 1% increase in sales revenues, but decrease by only 0.797% for a 1% decrease in sales. The degree of cost stickiness demonstrates a ‘U’ shape over the period and increases after the adoption of International Financial Reporting Standards. Sticky cost behaviour, however, is not evidenced in the resources, construction and retail industries. We document evidence consistent with the argument of adjustment costs of employed resources, managerial incentives and agency costs. The degree of cost stickiness in Australia increases with a firm's asset and employee intensity, and when managers have strong incentives to avoid decreases in earnings or losses, but is less pronounced when revenues decline in the preceding period and in firms with strong governance mechanisms. Our results provide important implications for external stakeholders’ understanding of firm performance.
  • Publisher: Melbourne: Blackwell Publishing Ltd
  • Language: English
  • Identifier: ISSN: 1035-6908
    EISSN: 1835-2561
    DOI: 10.1111/auar.12066
  • Source: Alma/SFX Local Collection
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