Cost Stickiness: Analysis and Determinants. Case Study of Saudi Companies

Tazarki Walid

doi:10.4236/tel.2021.112017

Abstract

This paper examines the existence of cost stickiness of KSA firms using the ABJ model. By analyzing accounting data of 12 selected Saudi companies from 2010 to 2019, the results show the existence of cost stickiness in COGS more than SGA Expenses. Furthermore, a low level of debts and a high Cash-Flow ratio are associated with cost stickiness in Saudi companies.

Highlights

Nowadays, the world is characterized by the globalization of markets and the relentless growth of competition between companies
By analyzing accounting data of 12 selected Saudi companies from 2010 to 2019, the results show the existence of cost stickiness in Cost of Goods Sold (COGS)
The problem proposed in this study is to know whether Selling, General and Administrative expenses (SGA) and/or Cost of Goods Sold (COGS) are sticky to changes in sales level? Thereafter, if cost stickiness exists, which factors can explain it?

Summary

Introduction

The world is characterized by the globalization of markets and the relentless growth of competition between companies. Decision-makers should be properly informed about the behavior of costs. Recent studies focusing on cost behavior have found that costs increase more with increases in activity than they decrease in response to equivalent decreases in activity; this result is called cost stickiness. This cost stickiness is in contradiction with the traditional theory of cost behavior which specifies that costs behave the same behavior for activity increases and decreases. Several studies have focused on the study of cost stickiness in developed and developing countries. We can notice an enormous lack of studies focusing on GCC (Gulf Cooperation Council) countries, more precisely researches

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Conclusion