THE INTENSITY OF THE ASYMMETRIC COST BEHAVIOR IN INDUSTRIAL COMPANIES LISTED ON THE AMMAN STOCK EXCHANGE (ASE) AND ITS IMPACT ON THE EARNING PER SHARE
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Date
2023-02-20
Authors
Muhannad Khayri Khaled Demaidi
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Abstract
The term "sticky cost" pertains to the disproportionate cost response to changes in activity. Specifically, it denotes a situation where the decline in cost due to a reduction in volume of activity is less than the increase in cost resulting from an equivalent increase in activity. Given this definition of the sticky cost phenomenon, the objective of the study is to examine the extent of asymmetric cost behavior in failed and non-failed industrial companies listed on the Amman Stock Exchange during the 2013-2019 period, specifically regarding Selling General and Administrative Cost (SG&A), Cost of Goods Sold (COGS), and Total Cost (TC). Additionally, the study analyzes the impact of asymmetric cost behavior on Earning Per Share (EPS) and highlighted the adverse effect of COGS on EPS.
The study utilized an empirical regression model and the Breusch-Pagan Test to analyze panel data. The results showed that the pooled OLS method was the most suitable for the study. Two models were used to examine asymmetric cost behavior and its impact on earnings per share (EPS).
The study revealed prevalent asymmetric cost behavior in Jordanian industrial firms, particularly in SG&A costs. However, only the non-failing group showed asymmetric (Anti-sticky) cost behavior in COGS. This highlights the importance of managerial decision-making when adjusting costs in response to changes in activity levels.
Further analysis of individual industrial sectors revealed variations in cost behavior and showed deviations from the results obtained when the sectors were studied as a single sample. It is found that the inclusion of sticky and anti-sticky costs in the analysis had a significant impact on the Earning Per Share (EPS) in various Industrial sectors. These findings emphasize the importance of revising analytical and forecasting models in managerial accounting, cost accounting, and financial accounting to incorporate the influence of sticky and anti-sticky cost behavior.
Keywords: asymmetric cost behavior, cost stickiness, anti-stickiness, earnings forecasting, costs adjustment, optimism, pessimism.