Abstract
Article history: Received October 28, 2013 Received in revised format 20 November 2013 Accepted 12 January 2014 Available online January 15 2014 One of the primary assumptions in accounting industries is to expect an increase (decrease) in cost of production is proportion to increase (decrease) in sales revenue. However, there are some evidences that the cost of production does not decrease with the same trend as revenue decreases. This phenomenon is called sticky behavior since the cost of production in not reduced as the sales decreases especially in operating as well as administration department. In this paper, we present an empirical investigation to study sticky behavior on 70 selected firms from Tehran Stock Exchange over the period 2002-2011. The results indicate that sales and general administration cost (SGA) as well as the costs of sold goods strongly have sticky behaviors. © 2014 Growing Science Ltd. All rights reserved.
Highlights
One of the primary assumptions in accounting industries is to expect an increase in cost of production proportionally increases the sales revenue
This paper presents an empirical investigation to study sticky behavior on 70 selected firms from Tehran Stock Exchange over the period 2002-2011
The first hypothesis of this survey is associated with the sticky behavior between sales and general administration cost (SGA) and sales revenue
Summary
One of the primary assumptions in accounting industries is to expect an increase (decrease) in cost of production proportionally increases (decreases) the sales revenue. Anderson et al (2003), for instance, studied whether different expenses are “sticky”—that is, whether various cost components increase more when activity rises than they decrease when activity cools down by an equivalent amount They reported, for 7,629 firms over 20 years, that selling, general, and administrative (SG&A) expenses increase on average 0.55% per 1% increase in sales but decrease only 0.35% per 1% decrease in sales. Their analysis compared the traditional model of cost. In their survey, abnormal positive returns could be earned on portfolios formed by going long on firms with high increases in the SG&A cost ratio
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