Cost Structure and Sticky Costs


Speaker


Abstract

Beginning with Anderson, Banker, and Janakiraman (2003), a rapidly growing literature attributes the short-run asymmetric cost response to activity changes (i.e., sticky costs) as resulting from managerial choices. We show that fixed costs induce non-stationarity in the elasticity of Sales, General and Administrative costs, affecting the interpretation of estimates from the standard specification used in the literature. We develop suggestions for how future research might control for the effects of cost structure. Empirically, we find that cost structure confounds results usually interpreted as reflecting short-run managerial actions. Further, after adjusting for the effects of fixed costs, we find that the results are unstable across alternate sub-samples.

 
Contact information:
Paolo Perego
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