Management Expense:Evidence for Sticky Behavior of Selling, General, and Administrative Costs in Iranian Firms

Subject Areas : Futurology

S.  Iranzadeh ¹ (نویسنده مسئول یا طرف مکاتبه)
H.  Mohammadzadeh moghadam ² (ندارد)

Received: 2009-01-10 Accepted : 2009-02-28 Published : 2010-03-21

Keywords: Selling, general, and administrative Costs, Sticky, Behavior costs, Activity volume, traditional model,

Abstract :

A fundamental assumption in cost accounting is that the relation between costs and volume issymmetric for volume increases and decreases. In this study, we investigate whether costs are"sticky"—that is, whether costs increase more when activity rises than they decrease when activityfalls by an equivalent amount. Our studies and researches are showing, that selling, general, andadministrative (SG&A) costs increase on average 0.43% per 1% increase in sales but decrease only0.32% per 1% decrease in sales. This sticky cost behavior contradicts the traditional model whichassumes that costs behave symmetrically for activity increases and decreases. Our analysis comparesthe traditional model of cost behavior in which costs move proportionately with changes in activitywith an alternative model in which sticky costs occur because managers deliberately adjust theresources committed to activities. We test hypotheses about the properties of sticky costs and how thedegree of stickiness of SG&A costs varies with firm circumstances.