A note on cost stickiness: Some international comparisons

Abstract

Contemporary studies on cost behaviour find that costs increase more with activity increases than they decrease in response to equivalent activity decreases. This sticky cost behaviour contradicts the traditional model which assumes that costs behave symmetrically for activity increases and decreases. Using a sample of US, UK, French, and German firms, we find that operating costs are sticky in response to changes in revenues; operating costs increase, on average, by around 0.97% per 1% increase in revenues, but decrease by only 0.91% per 1% decrease in revenues. Costs of French and German firms are more sticky than costs of UK and US firms; we conjecture that this result is attributable to differences in systems of corporate governance and managerial oversight. Costs tend to be less sticky over longer time-horizons and when firms sustain larger drops in revenue. Firm-specific and industry characteristics also impact on levels of cost stickiness.