Sticky cost behavior: evidence from small and medium sized enterprises in Turkey

Abstract

Evidence regarding cost behavior mostly comes from big listed companies. Cost behavior of SMEs, which are backbones of economy, is under-researched. This paper intends to fill this gap by providing evidence on cost stickiness from SMEs in an emerging economy. Cost stickiness refers to the notion that costs increase and decrease by differing magnitude for a specific change in the activity volume. Analyses of data for Turkish SMEs from 2013 to 2017 indicate that; total costs, cost of goods sold and selling, general and administrative costs are sticky in varying degrees. Cost stickiness of total costs and selling general and administrative costs reverses following a revenue decline period. The degree of stickiness of all cost categories is positively related to asset intensity and employee intensity while the degree of stickiness of total costs and cost of goods sold is negatively related to debt intensity. The degree of cost stickiness is higher for small revenue decreases than for greater revenue decreases. Finally, firms in different industries have different cost behaviors.