Sticky Costs, Earning Forcast And Market Reaction

Earning forecast plays an increasingly important role in China’s capital market, becoming critical reference information for investors, creditors, etc. Academia currently study on impact to earning forecast accuracy from system environment, economic environment, asset size, business performance, ownership structure, etc. Although in reality many factors affect reliability of earning forecast, cost forecast is always a necessary condition. Studies on current cost behavior show that cost and volume of business is not in a completely linear relationship, thus assumption of cost behavior in management accounting is put in challenge. Some scholars’empirical studies show that cost increase in business increase is greater than cost decrease in equivalent business decrease, which is called "Sticky Costs".(Anderson,2003; Zheng Sun, Hao Liu,2004; Yusheng Kong,2007). While Dan Weiss in2010studied "anti-sticky costs" for the first time. So would sticky costs or anti-sticky costs affect difficulty of earning forecast as well as its accuracy? Would analysts pay more attention on this? And is it possible that capital market would take weaker reaction in front of earning surprises, due to acknowledge of sticky/anti-sticky costs influences?Based on analyses of relevant background documents and system at home and abroad, this article chooses A Stock manufacturing enterprises in2009-2010as samples. This article shows that with environment risk, business characteristics, industry and other related factors under control, the greater sticky/anti-sticky costs, the lower accuracy of earning forecast. But this article does not detect relationships between sticky/anti-sticky costs and management forecast errors. In China sticky/anti-sticky costs have not been critical factors in analyses. Cumulative abnormal return in capital market is proportional to the earnings forecast error. Only with sticky costs can the market be aware of their influence with the accuracy of earning forecast-the market react more weakly to earnings surprises with more sticky costs. In addition, the market would be aware of the influence of sticky/anti-sticky costs to the accuracy of earnings forecast when earnings surprises appear.This article studies earnings forecast from a cost perspective, which not only fills the blank space of academic literature in the field, but also helps better use of corporate financial reports for decision making. This article refers to the new measurement method invented by Dan Weiss and allows enterprises to directly measure costs stickiness/anti-stickiness, which supports a series of follow-up studies. The introduction of this measurement method provides domestic scholars on cost behavior study of broad space for play.