Managerial Expectation And Cost Stickiness

Cost stickiness, an asymmetric behavior of costs,which refers to costs typically increase more for a one percent increase in activity than they decrease for an equivalent decreases in activity, is gradually becoming one of the focus of cost management research. The causes of cost stickiness of cost stickiness include three aspects:adjustment costs, agency problems and managerial expectations (managerial optimism and managerial pessimism).The thesis discusses the theoretical explanations of cost stickiness based on contract perspective,efficiency perspective and opportunism perspective. Domestic researches focused on the cost stickiness and agency problems, without exploring the relationship between managerial expectations and cost stickiness. Besides, recent foreign studies confirmed the existence of cost anti-stickiness, which will develop a more comprehensive explanation of cost behavior. Therefore, the paper will do in-depth research about managerial expectations and cost stickiness, and verify whether cost anti-stickiness exists in the China’s listed companies.This thesis consists of5parts which proceed as follows:Part I elaborates the background and significance(including the theoretical significance and application value) of the research, defines the relevant concepts, describes the contents and methods of the paper, and at last provides the possible innovations to the literature of cost stickiness at home. Part II reviews extent literature about cost stickiness in and abroad.Part III provides theoretical building blocks and develop the hypotheses of this paper. In this part, we explore the influence mechanism of managerial expectations to cost stickiness, which depends on relevant theories of behavioral economics. Part IV is the empirical study. Firstly, combining the research of Banker et al.(2011),the paper modifies the ABJ(2003) model about cost stickiness and defines variables. Secondly, based on selecting of sample statistics, the paper analyzes the descriptive statistical results. Thirdly,the paper verifies the hypothesis using regression analysis. Part Ⅴ concludes.This part presents the major conclusions and the limitations as well as directs future research.Using data for China’s listed companies in stock markets of Shanghai and Shenzhen over the period2008-2011,this paper results in four dimensions:1) costs are sticky when we condition on a sales increase in prior period, but costs are in fact anti-sticky when conditioned on a prior period sales decrease.2)Conflicting signals will lessen managers’confidence in expectation and confirmatory signals will strengthen managerial expectation, which will influence the extent of cost stickiness and anti-stickiness.3)Macro-economic growth has no significant effect on cost stickiness, but helps to reduce the level of cost anti-stickiness.4) The motivation of management to avoid earning losses will affect cost management,and the effect will be more significant on managerial pessimism.This thesis makes three innovations to extant literature.1) Using the relevant theories of behavioral economics to explain the influence of managerial expectations to cost stickiness(anti-stickiness) to further enrich the cost stickiness theory.2)First using empirical methods to verify the influence of managerial expectations to cost stickiness.3) Proving the existence of cost anti-stickiness in the China’s listed company for the first time.