Evidence on the Trade-Off between Cost Stickiness and Income Smoothing

Title data

Loy, Thomas ; Hartlieb, Sven:
Evidence on the Trade-Off between Cost Stickiness and Income Smoothing.
Bayreuth , 2018 . - 53 p.
DOI: https://doi.org/10.2139/ssrn.2814309

Official URL:

Abstract in another language

This study investigates the relationship between cost stickiness and income smoothing. Both arise as a result of managerial discretion. However, an asymmetrical reaction of costs to changes in activity counteracts an ambition to report smooth income. Inversely, reducing costs during periods of declining sales, in order to secure a smooth income stream, aligns costs with activity and mitigates cost stickiness. Applying both a cross-sectional and a firm-specific model of cost stickiness, we find evidence for this negative relationship. We further separate the discretionary component from our aggregate income smoothing measure and show that the negative relation is primarily driven by opportunistic managerial motives. Our results corroborate the important role that managerial discretion plays in financial accounting as well as cost behavior.

Further data

Item Type:	Working paper, discussion paper
Keywords:	Asymmetric Cost Behavior; Income Smoothing; Managerial Discretion; Earnings Management
Subject classification:	JEL Classifications: D22; M41; M52
Institutions of the University:	Faculties > Faculty of Law, Business and Economics > Department of Business Administration > Former Professors > Junior Professor Auditing and Financial Reporting - Juniorprof. Dr. Thomas Loy Profile Fields > Emerging Fields > Governance and Responsibility Faculties Faculties > Faculty of Law, Business and Economics Faculties > Faculty of Law, Business and Economics > Department of Business Administration Faculties > Faculty of Law, Business and Economics > Department of Business Administration > Junior Professor Auditing and Financial Reporting Profile Fields Profile Fields > Emerging Fields Faculties > Faculty of Law, Business and Economics > Department of Business Administration > Former Professors
Result of work at the UBT:	Yes
DDC Subjects:	300 Social sciences > 330 Economics
Date Deposited:	26 Jul 2016 07:18
Last Modified:	04 Apr 2019 05:40
URI:	https://eref.uni-bayreuth.de/id/eprint/33656