Empirical Research On The Relationship Between Cost Stickiness And Analysts’ Earnings Forecasts

Cost stickiness has become a new research topic in management accounting. Costs are termed sticky if the relative magnitude of an decrease in costs for an decrease in activity level is less than the relative magnitude of an increase in costs for a similar increase in activity level. Managers optimistic expectations and agency problems lead to sticky costs.Analysts estimate firms’ costs in the process of forecasting future earnings,therefore cost behavior prediction is an important part of earnings prediction.Because of cost stickiness, asymmetric cost behavior leads to asymmetric earnings forecasts.Whether cost stickiness influnces analyst’s earnings prediction has become a topic worth exploring.This paper is based on the effective sample data of the Shenzhen Stock Exchange A Share manufacturing listed companies from 2007 to 2013. After controlling for company size, quality of information disclosure, loss, earnings volatility and so on,this paper explores the relationship between cost stickiness and analysts’ earnings forecasts. Results show that:(1) there is cost stickiness in Chinese listed companies indeed;(2) cost stickiness influences the accuracy of analysts’ earnings forecasts,and firms with stickier cost behavior have less accurate analysts’ earnings forecasts;(3) cost stickiness has no statistically significant effect on analyst following;(4) the market is aware of the effect of cost stickiness on analysts’ earnings forecasts accuracy,and cost stickiness leads to weaker market response.This paper combines the core management accouting topic,cost behavior, with three basic financial accounting topics(namely,analysts’ earnings forecast accuracy, analysts’ follow,the market reaction to unexpected earnings), which shows that integrating financial accounting and management accounting research has important implications.