Asymmetric Cost Behavior and Its Impact on Improving Earnings Prediction Models

Abstract

The purpose of the study is to exhibit the terms, characteristics, and drivers of asymmetric cost behavior and to highlight the main factors that cause error in analysts' earnings forecasts. As well as, showing the impact of the asymmetric cost behavior on analysts' earnings forecasts in the Egyptian market. The study uses multiple regression analysis to examine the impact of the behavior of total costs (TC), selling, general, and administrative costs (SG&A) and costs of goods sold (COGS), each, on earnings forecast error for the Egyptian-listed firms. Using a sample of most effective Egyptian firms listed in the EGX100 index, the results of the study indicated that the asymmetric cost behavior has a significant impact on analysts' earnings forecast in both total costs and costs of goods sold with lower significance of selling, general, and administrative costs. The study suggests analysts to adopt models that consider the asymmetric cost behavior.

Keywords

• sticky costs
• cost behavior
• earnings forecasts
• analysts coverage