Impacts of cost stickiness on profitability: The case of listed companies in Vietnam

Abstract

According to the traditional cost behavior, costs are categorized as fixed or variable costs. Variable costs change proportionately with changes in the activity driver. Nevertheless, empirical evidence shows that cost increase with activity increase is more rapid than cost decrease with activity decrease. This phenomenon is named as sticky cost. In this paper, we measure the cost stickiness of each company and answer the research question that whether sticky costs affect the profitability of listed companies in Vietnam. We find that selling costs, general costs, and administration costs of listed companies in Vietnam are sticky in period 2011 – 2015, and the situation is more serious than the case of US and Brazil. Our analysis shows that the stickiness of selling and administration costs affects the earnings per share forecast. The paper suggests some recommendations for managers to avoid the negative effects of sticky cost on business performance.

Keywords

• sticky cost
• selling and administration costs
• cost behavior
• firm profitability