Do managers forecast asymmetric cost behaviour?

Michael E Bradbury and Tom Scott
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Michael E Bradbury: School of Accountancy, Massey University, Albany, New Zealand
Tom Scott: Accounting Department, Auckland University of Technology, Auckland, New Zealand

Australian Journal of Management, 2018, vol. 43, issue 4, 538-554

Abstract: This article examines cost behaviour in a municipal (local government) setting and finds evidence of cost stickiness. We also find that costs are super-sticky as they increase even when revenues decrease. Municipals in New Zealand are required to produce forecasts, which allow us to investigate whether asymmetric cost behaviour is incorporated into forecasts. Forecast cost behaviour is found to be statistically indistinguishable from actual behaviour. In our tests, we control for asset intensity, employee intensity, expected demand, operating slack and past cost structure. The finding that the asymmetric relation between costs and revenues is incorporated into managerial forecasts suggests that cost stickiness is understood by managers rather than being merely a mechanistic outcome of cost structure. JEL Classification: M41, D24, H72

Keywords: Asymmetric cost behaviour; management forecasts; municipal; operating costs; resource adjustment costs; sticky costs (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:43:y:2018:i:4:p:538-554

DOI: 10.1177/0312896218773136

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