The effect of management insight and sales changes on the asymmetric behavior of costs

Number of pages: 104 File Format: word File Code: 29799
Year: Not Specified University Degree: Master's degree Category: Librarianship
  • Part of the Content
  • Contents & Resources
  • Summary of The effect of management insight and sales changes on the asymmetric behavior of costs

    Dissertation for Master's degree (M.Sc)

    Major: Accounting

    Abstract:

    The main purpose of this research is to investigate the impact of management insight and sales changes on the asymmetric behavior of companies listed on the Tehran Stock Exchange. The statistical population of the current research is the companies admitted to the Tehran Stock Exchange during the years 1383 to 1392, and the sample size is 192 companies according to the screening method and after removing outliers. In this research, management insight and sales changes are considered as independent variables in order to investigate their impact on the asymmetric behavior of the company's costs.

    In this research, consolidated and panel data with fixed effects were used, the results of the analysis of the companies' data using multivariate regression at the 95% confidence level show that stable and unstable changes cause the asymmetric behavior of operating costs and the cost of goods sold. becomes Also, these results show that management optimism and pessimism causes asymmetric behavior of operating costs and cost of goods sold. Key words: stable changes, unstable changes of management optimism, management pessimism, asymmetric behavior of costs.Introduction

    Knowing the behavior of costs in response to changes in the level of production and sales is very important for the management of companies (Chen et al. [1], 2008). Recent empirical research on cost behavior has shown that the amount of cost reduction when sales decrease is less than the amount of cost increase when the same amount of sales increases. This cost behavior is called cost stickiness. It is argued that cost stickiness is the result of managers' deliberate decisions[2].  When sales decline, some managers consider this decline to be temporary and expect sales to return to previous levels in the near future. Therefore, in a well-considered decision, they maintain resources related to operational activities during periods of reduced sales; Because if the resources are removed in response to the decrease in sales and re-invested in the periods of increase in sales, the company's costs will increase in the long term (Banker and Chen [3], 2006).

    In the present research, the effect of management insight and sales changes on the asymmetric behavior of the costs of companies listed on the Tehran Stock Exchange is examined. Therefore, in the rest of this chapter, the overall design of the research including hypotheses, research objectives, variables and their operational definition and the statistical methods used to test the hypotheses will be explained. For example, according to Anderson et al.'s (2005) argument, cost stickiness occurs because managers deliberately adjust resources related to operational activities. On the other hand, even though maintaining additional resources during periods of reduced sales leads to incurring more costs and, as a result, reducing profits in the current period, it reduces costs and increases profits in the long run. In addition, if managers reduce the resources related to operational activities in proportion to the decrease in sales, it will take time to learn and prepare the resources again in the future. Therefore, if resources and, as a result, costs are reduced in proportion to the decrease in sales, the company loses sales development opportunities; Because it cannot recruit the necessary resources to expand sales quickly enough to take advantage of the opportunities. For this reason, managers have to make a decision to choose one of the cost reduction options by eliminating resources or bearing more costs to fully exploit the increase in future sales, and one of the most fundamental causes of cost stickiness is the calculated decisions of managers who try to increase profits in the long term according to the forecast of future sales (same source). But the occurrence of cost stickiness shows that managers place more emphasis on long-term profits. Bearing the cost of additional resources in periods of reduced sales, which is done in order to prepare for increasing sales in the future, causes lower cost burden in the long term and gives the company the ability not to lose opportunities to increase sales in the future. But the requirement to preserve resources in order to achieve more profits in the future is that managers anticipate a temporary decrease in demand and expect an increase in future sales.. But the requirement to preserve resources in order to achieve more profits in the future is that managers anticipate a temporary decrease in demand and expect an increase in future sales. In periods of sales decline, if managers anticipate future sales increases, they will keep more resources to take advantage of the increase in demand; Because if the resources are reduced, the company will not have enough resources when increasing the sales, which leads to the loss of opportunities. The amount of lost opportunity is also proportional to the expected increase in sales; Therefore, in case of a decrease in sales in the current period, the more optimistic the management's forecast of the future period's sales is, it shows that the decrease in sales is more temporary from the point of view of the management. For this reason, more resources are preserved in order to prepare for increased sales in the future (Chen et al., 2008). According to the above, the main problem is to investigate the impact of management insight and sales changes on the asymmetric behavior of costs in companies listed on the Tehran Stock Exchange. Planning and budgeting, pricing products, determining the break-even point and other management matters. In the traditional model of cost behavior in management accounting, variable costs increase or decrease proportionally to changes in activity volume. This means that the magnitude of changes in costs is only dependent on the magnitude of changes in the volume of activity, and the direction of changes (increase or decrease) in costs when the level of activity increases is greater than the amount of decrease in costs when the volume of activity decreases. This issue is important because determining the relationship between cost structure and cost stickiness can increase the ability of business unit management in cost management and cost control in the long run. Knowing the relationship between cost structure and cost stickiness can reduce the uncontrollable effects of not knowing cost stickiness, and the presence of cost stickiness in the business unit's performance does not lead to unstable action and instability in the business unit's performance.

    1-4 scientific objectives

    The aim of this research is to investigate the effect of management insight and sales changes on the asymmetric behavior of costs in companies listed on the Tehran Stock Exchange, and by analyzing the obtained results, the relationship between Let's specify them. 1-5 practical goals Knowing the cost behavior in response to changes in production and sales levels is very important for company management. The stickiness of costs, which is observed in periods of reduced sales, causes a decrease in the profit of a period. But the occurrence of cost stickiness shows that managers place more emphasis on long-term profits. On the other hand, knowing how costs behave in relation to changes in the activity level and sales level is important information for managers to make decisions regarding planning and budgeting, product pricing, determining the break-even point and other managerial matters. Stickiness of costs in companies admitted to the stock exchange to make optimal decisions that lead to minimum risk and maximum return. 1-7 Hypotheses 1st hypothesis: stable changes cause asymmetric behavior of operating costs. 2nd hypothesis: stable changes cause asymmetric behavior of the cost of goods sold. 3rd hypothesis: unstable changes cause asymmetric behavior of operating costs.

    Fourth hypothesis: Unstable changes cause asymmetric behavior of cost of goods sold.

    Fifth hypothesis: Management optimism causes asymmetric behavior of operating costs.

    Sixth hypothesis: Management optimism causes asymmetric behavior of cost of goods sold.

    Seventh hypothesis: Management pessimism causes asymmetric behavior of operating costs.

    Eighth hypothesis: management pessimism causes asymmetric behavior of cost of goods sold

  • Contents & References of The effect of management insight and sales changes on the asymmetric behavior of costs

    List:

    Table of Contents

    Page Title

    Abstract 1

    Chapter One: Overview of the Research Plan. 2

    1-1 Introduction. 3

    1-2 describing the topic and stating the problem. 3

    1-3 Necessity of doing research. 4

    1-4 scientific goals. 5

    1-5 practical goals. 5

    1-6 Beneficiaries. 5

    1-7 hypotheses 6

    1-8 research model. 6

    1-9 research methods. 9

    1-10 information gathering methods. 9

    1-12 scope of research. 9

    1-12-1 Subject area of ??research. 9

    1-12-2 Time domain of research. 9

    1-12-3 spatial territory of research. 9

    1-13 research structure. 9

    Chapter Two: Review of research literature and research background. 11

    2-1 Introduction. 11

    2-2 The behavior of costs in relation to the level of activity. 11

    2-3 cost behavior over time. 13

    2-4 Concept of cost stickiness: 14

    2-5 Classification of cost stickiness literature 15

    2-5-1 Evidence of cost stickiness: 15

    2-5-1-1 Cost stickiness between business units (time periods): 16

    2-5-1-2 Cost stickiness between business units cross-sectionally. 16

    2-5-1-3 cost stickiness of business unit departments: 18

    2-5-1-4 cost stickiness among different industries: 19

    2-5-2 determinants of cost stickiness 19

    2-5-2-1 deliberate decisions of managers: 19

    2-5-2-2 optimism of managers. 20

    2-5-2-3 Impact of technological limitations. 21

    2-5-2-4 Number of employees and amount of fixed assets. 21

    2-5-2-5 Use of capacity and adjustment costs. 22

    2-5-2-6 Representation problems. 23

    2-5-2-7 GDP growth. 23

    2-5-3 Effects of cost stickiness 24

    2-5-3-1 The effect of cost stickiness on profit forecast by financial analysts and future profit and market reaction. 24

    2-5-3-2 The effect of cost stickiness and profit management. 25

    2-6 research background. 25

    2-6-1 Foreign research. 25

    2-6-2 Internal investigation. 30

    2-7 chapter summary. 31

    Chapter three: the method of conducting research. 32

    3-1 Introduction. 33

    3-2 research method. 33

    3-3 research hypotheses. 33

    3-4 Research model and operational definition of variables 34

    3-5 Population and statistical sample. 37

    3-6 Information gathering. 39

    7-3 validity and reliability of the tool. 39

    8-3 methods and tools of data analysis 40

    9-3 statistical methods of hypothesis testing 40

    3-10 chapter summary. 41

    Chapter four: research findings. 42

    4-1 Introduction. 43

    4-2 Descriptive statistics of variables 43

    4-3 Reliability test of variables 46

    4-4 Determining the appropriate model to estimate the regression model. 46

    4-5 classical hypothesis test of regression. 48

    4-5-1 test of normality of distribution of variables 48

    4-5-2 test of independence of errors 49

    4-5-3 heterogeneity of variances 50

    4-5-4 test of collinearity of independent variables. 50

    4-6 test of research hypotheses. 51

    4-6-1 Test model of the first and third hypothesis. 51

    4-6-2 The second and fourth hypothesis test models. 53

    4-6-3 The fifth and seventh hypothesis test models. 55

    4-6-4 Sixth and eighth hypothesis test models. 57

    Chapter five: conclusions and suggestions. 61

    5-1 Introduction. 62

    5-2- Summary of results and interpretation of research findings. 62

    3-5 limitations of the research. 65

    4-5 Research results. 66

    5-5 suggestions for future research. 66

    List of sources. 67

    Appendix. 69

    Source:

    List of sources

    Hafiz Niya Mohammad Reza, an introduction to research methods in humanities, published on 15th winter 2017

    Khalqi Moghadam Hamid; Kerami, Farooq, profit forecasting using a model based on cost variability and stickiness, Accounting Studies, year 88, number 23, pp. 19-41 Qaemi, Mohammad Hossein; Nemat Elahi, Masoumeh, investigation of distribution and sales cost behavior and general and administrative costs of finished goods sold in production companies admitted to Tehran Stock Exchange, Accounting Studies Quarterly, No. 16, pp. 71-78. Kurdestani, Gholamreza; Mortazavi, Seyyed Morteza; Investigating the impact of the considered decisions of managers on the stickiness of costs, accounting reviews and so on69

    Source:

     

    List of sources

    Hafiz Niya Mohammad Reza An introduction to research methods in humanities, published on 15th winter 2017

    Khalqi Moghadam Hamid; Kerami, Farooq, profit forecasting using a model based on cost variability and stickiness, accounting studies, year 88, number 23, pp. 19-41 Qaemi, Mohammad Hossein; Nemat Elahi, Masoumeh, investigation of distribution and sales cost behavior and general and administrative costs of finished goods sold in production companies admitted to Tehran Stock Exchange, Accounting Studies Quarterly, No. 16, pp. 71-78. Kurdestani, Gholamreza; Mortazavi, Seyyed Morteza; Investigating the impact of managers' considered decisions on cost stickiness, Accounting and Auditing Reviews, 2013, Volume 19, Number 67, pp. 73-90

    Namazi Mohammad, Investigating the activity-based costing system in management accounting and its behavioral considerations. Accounting and Auditing Quarterly, Winter 1977 and Spring 1978, numbers 26 and 27, pp. 134-144

    Namazi Mohammad, Davanipour Iraj, an experimental study of the sticky behavior of costs in the Tehran Stock Exchange, Accounting and Auditing Quarterly, Winter 1989, number 62, pp. 85-102

    Anderson S, Lanen W. Understanding Cost Management: What Can We Learn from the Evidence on Sticky Costs?". Working Paper, Rice University, University of Michigan 2007. Anderson, M. C., Banker, R. D., Chen T. L., and S. Janakiraman. 2001. Drivers of stickiness in the cost of sales at service firms. Working paper, The University of Texas at Dallas

    Anderson, M.C, Janakirman Are Selling, General and Administrative Costs “Sticky”?. Journal of Accounting Research 2003; 41(1): 47-63

    Balakrishnan R, Gruca T. Cost Stickiness and Core Competency: A Note Working Paper, The University of Iowa 2008.

    Balakrishnan R, M. J. Petersen, N. S. Soderstrom. Does Capacity Utilization Affect the “Stickiness” of Cost?", Journal of Accounting, Auditing and Finance 2004; 19(3): 283-299.

    Balakrishnan, C, & Gruca, J. 2013. Asymmetric cost behavior. Working paper, Temple University.

    Banker R, Chen L. Predicting Earnings Using a Model Based on Cost Variability and Cost Stickiness, The Accounting Review 2006; 81(2):285-307.

    Banker, R., and M. Mehta. Real cost management and anomalous financial performance ratios, Temple University.

    Benker, C. X., and J. Nasev. 2014. Working paper, University of Illinois.

    Calleja K, Steliaros M, Thomas D. A Note on Cost Stickiness: Some International Comparisons, Management Accounting Research 2006;17(2): 127-140.

    Chen C, Lu H, Sougiannis T. Managerial Empire Building, Corporate Governance and the Asymmetrical Behavior of Selling, General, and Administrative Costs, AAA Management Accounting Section (MAS) Meeting Paper 2008

    Cooper R, Kaplan R. S. Cost & Effect – Using Integrated Cost Systems to Drive Profitability and Performance, Harvard Business School Press, Boston 1998a.

    Cooper R, Kaplan R. S. The Design of Cost Management Systems –Text and Cases (2nd ed), Prentice Hall Inc., New Jersey 1998

    Evidence from Hospital Service Departments, Review of Accounting Studies 1997; 2: 89-114.

    Ingram R, Albright T and Hill J. Managerial Accounting: Information forecasts. Cincinnati: South-Western 1997. Lazere, C. 1996. Spotlight on SG&A. CFO 12(December): 28-34.

    Medeiros. O. R. Costa. P. S. Cost Stickiness in Brazilian Firms, Available at SSRN 2004 Medeiros.

    Noreen E, N. Soderstrom. The Accuracy of Proportional Cost Models:

    Subramaniam C, Weidenmier M. Additional Evidence on the Sticky Behavior of Costs, Working Paper, Texas Christian University 2003.

The effect of management insight and sales changes on the asymmetric behavior of costs