Sticky Cost Drivers: An Analytical Study of Cost Stickiness’ Causes

Abstract

The current study provides an analytical study of the causes of sticky cost behavior from the perspective of both the deliberate decision theory and the cost adjustment delay theory. In the traditional model of cost behavior, the relationship betw een cost and activity volume is independent of managers’ decisions, but the ABJ model presented by Anderson, Banker and Janakiraman (2003) demonstrated the role of managerial decisions in cost behavior. This means that cost stickiness is not an inevitable phenomenon but rather a result of managers’ decisions whether intentional, unintended or inappropriate. Moreover, company policies, ownership structure, and social legislation may affect the cost stickiness. Using the desk research method, the author relied on previous literature to determine and categorize the cost stickiness’ drivers. According to the theory of deliberate decision, the author distinction between the potential drivers of cost stickiness resulting from managers’ decisions, and the drivers related to the firm. In addition, the cost may become sticky due to the inability of cost to keep pace with declining sales. According to cost adjustment delay theory, managers keep the unused resources until it is assured of a continued decline in demand or based on their expectations for a future sale, but in the long run, prices, wages, and expectations are fully adapted to the state of the markets and economy, reducing cost stickiness. This study has implications for researchers by enhancing their understanding of the sticky cost drivers.