A contextual analysis of the impact of managerial expectations on asymmetric cost behavior

Jason V. Chen (), Itay Kama () and Reuven Lehavy ()
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Jason V. Chen: University of Illinois at Chicago
Itay Kama: Tel Aviv University
Reuven Lehavy: University of Michigan

Review of Accounting Studies, 2019, vol. 24, issue 2, No 9, 665-693

Abstract: Abstract We examine the effect of managerial expectations on asymmetric cost behavior in the context of resource adjustment costs and unused resource constraints. Our results show that the incremental impact of managerial expectations on cost asymmetry is the strongest when adjustment costs and unused resources are high. Conversely, when both are low, expectations have no impact on the degree of cost asymmetry. Furthermore, when the degree of unused resources is high, managerial pessimism is associated with anti-sticky cost behavior but managerial optimism reverses this relation and results in cost stickiness. Finally, we find the strongest cost stickiness under the following: a low degree of unused resources, a high magnitude of adjustment costs, and optimistic managerial expectations; by contrast, the strongest cost anti-stickiness occurs when all three drivers operate in the opposite direction. Our study suggests that additional economic determinants should be considered when assessing the impact of managerial expectations on cost behavior.

Keywords: Cost asymmetry; Cost stickiness; Cost anti-stickiness; Forward-looking statements; Managerial expectations; Managerial decisions; Adjustment costs; Unused resources (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (16)

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DOI: 10.1007/s11142-019-09491-2

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