Consumer Sentiment, Managerial Expectations and Resource Adjustment Decisions

Abstract

This study presents evidence on the relationship between consumer sentiment and resource adjustment decisions. Consumer sentiment surveys are wide-spread pieces of economic information, accepted as reliable predictors of future economic activity, which is why they should influence managerial expectations underlying future-oriented resource adjustment decisions. In line with these considerations, I find that managers are more likely to retain slack resources following a decrease in sales when consumer sentiment about future business prospects is improving. Managers seem to adopt consumers’ optimism about future economic prospects by deciding to stall resource adjustments until sales recover to avoid current and future adjustment costs, thus increasing the firms’ level of sticky cost behavior. Together with various additional analyses, this study provides new insights into managers’ resource adjustment decision-making process and enhances our understanding of the information upon which managers form their expectations.