Are Middle Managers’ Cost Decisions Sticky? Evidence from the Field

Abstract

Anderson, Banker, and Janakiraman (2003) show that costs are “sticky” (i.e., costs change relatively less when sales decrease than when sales increase) because managers are reluctant to cut resources when sales decrease. We predict that cost behavior at the middle management level is sticky also when the magnitude of sales increase is sufficiently large, considering that middle managers have more limited ability in adding resources and are more risk averse. Using a survey instrument and interviews, we find evidence that middle managers’ cost decisions are sticky at both ends. Our findings are supported by empirical evidence based on segment-level data. DOI: 10.15458/ebr.85