Asymmetric Price Adjustment, Sticky Costs and Operating Leverage over the Business Cycle

Arnab Bhattacharjee, Chris Higson and Sean Holly
Additional contact information
Chris Higson: London Business School

No 1402, SEEC Discussion Papers from Spatial Economics and Econometrics Centre, Heriot Watt University

Abstract: ‘Operating leverage’describes the extent to which a …Firm’s operating costs are fi…xed in the short term. Operating leverage ampli…es the earnings impact of a change in revenues; an effect which is further amplified by fi…nancial leverage and by non-proportionality in the tax system. Since the costs of adjusting capacity are likely to vary depending on the nature of the inputs, we expect to see sectoral differences in operating leverage around the business cycle and, indeed, differential adjustment costs underlie the distinction between cyclical and non-cyclical fi…rms that is popular with fi…nancial market practitioners. We fi…nd using a large data set on quoted UK companies between 1966 and 2010 that there are significant differences among sectors in the way it which operating leverage adjusts.

Keywords: Operating Margin; panel data; …fixed and ‡flexible costs; Business Cycles (search for similar items in EconPapers)
JEL-codes: D4 E32 G30 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://seec.hw.ac.uk/images/discussionpapers/SEEC_DiscussionPaper_No4.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hwe:seecdp:1402

Access Statistics for this paper

More papers in SEEC Discussion Papers from Spatial Economics and Econometrics Centre, Heriot Watt University Contact information at EDIRC.
Bibliographic data for series maintained by Colin Miller ().