The Relationship Between Company Strategies and Effective Factors According to The Degree of Cost Stickiness

الموضوعات :

Zahra Hashemipour Nasri ¹ , Mojgan Safa ² , Fardin Mansouri ³ , Reza Gholami Jamkarani ⁴

1 - Department of Accounting, Qom Branch, Islamic Azad University, Qom, Iran
2 - Department of Accounting, Qom Branch, Islamic Azad University, Qom, Iran
3 - Faculty of Economy,University of Sistan and Baluchestan, Zahedan,Iran
4 - Department of Accounting, Qom Branch, Islamic Azad University, Qom, Iran

تاريخ الإرسال : 30 الإثنين , صفر, 1444 تاريخ التأكيد : 18 الجمعة , ربيع الأول, 1444 تاريخ الإصدار : 09 السبت , ذو الحجة, 1445

الکلمات المفتاحية: investment strategy, heavy asset strategy, affiliation with business groups, company business strategies, light asset strategy,

ملخص المقالة :

Cost stickiness is an essential subject in accounting and economics studies affected by several factors. Profit management improves how profits are presented as desired, given the importance of the company's profit for the users of financial statements. This study aimed to evaluate the strategies of heavy and light assets, company business, affiliation with business groups, investment, cost-oriented, abundance of debt, revaluation, labor adjustment, tax avoidance, and family ownership on the stickiness of the costs of companies accepted in the capital market of Iran. First, the variables and factors influencing the level of the stickiness of companies' costs were identified using expert interviews and Lawshe's index, and then the identified variables were measured. Finally, 102 companies from Iran's capital market were selected to perform statistical tests. The hypotheses testing during the six years period from 2015 to 2020 indicated that the studied strategies affected the stickiness of companies' costs.

نص كامل:



 

 

The Relationship between Company Strategies and Effective Factors According to the Degree of Cost Stickiness

Abstract

Cost stickiness is an essential subject in accounting and economics studies affected by several factors. Profit management improves how profits are presented as desired, given the importance of the company's profit for the users of financial statements. This study aimed to evaluate the strategies of heavy and light assets, company business, and affiliation with business groups, investment, cost-oriented, abundance of debt, revaluation, labor adjustment, tax avoidance, and family ownership on the stickiness of the costs of companies accepted in the capital market of Iran. First, the variables and factors influencing the level of the stickiness of companies' costs were identified using expert interviews and Lawshe's index, and then the identified variables were measured. Finally, 102 companies from Iran's capital market were selected to perform statistical tests. The hypotheses testing during the six years period from 2015 to 2020 indicated that the studied strategies affected the stickiness of companies' costs.

Keywords: heavy asset strategy, light asset strategy, company business strategies, affiliation with business groups, investment strategy, cost-oriented strategy, abundance of debt, asset revaluation strategy, workforce adjustment, tax avoidance, family ownership, cost stickiness of companies.

1.       Introduction

Awareness of the behavior of costs to changes in the activity level and sales is important information for managers to make decisions regarding planning and budgeting, pricing products, determining the break-even point, and other management issues. Variable costs increase or decrease proportionally to changes in activity volume in traditional models of cost behavior in management accounting. The magnitude of changes in costs is only dependent on the magnitude of changes in the volume of activity, and the direction of changes (increase or decrease) in the volume of activity has no effect on the magnitude of changes in costs (Chune et al., 2019).

Cost stickiness recently indicates that the increase in costs when increasing the activity level more than the decrease in costs when decreasing the volume of activity. Cost stickiness is a characteristic of the behavior of costs when the activity level changes, indicating that the magnitude of the increase in costs when the activity level increases is greater than the magnitude of the decrease of costs when the activity level decreases. Chen (2012) investigated the effect of managers' choice on cost labeling resources by labor adjustment. Anderson et al. (2003) evaluated the cost stickiness and stated that the costs are sticky when the sales decrease by the same amount as the increase in activity and the costs decrease to a smaller amount. Etily Wedon (2012) studies the effect of labor adjustment on cost stickiness with the objective of profitability. When sales decline, some resources remain unused unless managers make deliberate decisions for elimination. According to this study, managers wait to eliminate unused resources when they expect sales declines to be temporary. Karen et al. (2016) found that profit-seeking managers consider their interests during labor adjustment and overlook the firm value. Edgar et al. (2016) expressed that when these incentives are coupled with the goal of profitability, profit-seeking managers tend to eliminate unused resources even in the face of temporary sales declines. These incentives are coupled with the goal of profitability, profit-seeking managers tend to eliminate unused resources even in the face of temporary sales declines. Therefore, incentives with the purpose of profitability probably reduce the degree of cost stickiness according to the concept of cost stickiness (Anderson et al., 2003). Therefore, this study examined the relationship between the company's strategies and their effective factors with the cost stickiness level. This study continued with the outline of the theoretical foundations and research background, as well as the explanation of the research method and hypotheses, and then the results of the hypothesis test were explained, and finally, the conclusions and suggestions were expressed.

2.       Theoretical foundations and research background 

Previous studies regarding cost stickiness have not investigated the effect of the company's strategies and their effecting factors. Balakrishnan et al. (2004), Kama and Weiss (2010), Anderson et al. (2007), Chune et al. (2012), and Banker et al. (2012) have identified several limited and firm factors that empirically affect cost stickiness. Managers may make wrong decisions regarding the management and consumption of resources, thus reducing the value of the company and reducing the wealth of shareholders. Therefore, managers should experimentally determine the effect of strategies of heavy and light assets, company business, affiliation with business groups, investment, cost-oriented, abundance of debt, revaluation, labor adjustment, tax avoidance, and family ownership for making decisions for resource consumption, causing cost stickiness. 

As described in the traditional costing model, the proportionality between the costs and the activity level is not always established and estimating the cost behavior without considering the stickiness behavior of the costs will be misleading.

Knowing the cost behavior is important for accountants, researchers and all related to management and evaluation changes. The managerial implication of this analysis states that cost stickiness can be identified and controlled. Managers should evaluate their reasons for cost stickiness by paying attention to the sensitivity of cost changes to volume reduction to modify the company's response capacity and strategies against reducing demand for goods or services to improve the response process. Company owners can analyze managers’ costs imposed on the firm by specifying cost stickiness (Medeiros & Costa, 2004). According to traditional analysis, the disproportionate increase in operational, distribution, sales, and administrative and organizational costs compared to sales is considered a management control weakness, and the weakness indicates the lack of a suitable strategy according to the companies' conditions. This analysis may be misleading because when these costs are sticky, they will move proportionally with the increase in sales while they will not decrease proportionally with the decrease in sales. However, auditors assume costs change in line with sales fluctuations when performing analytical review procedures. Therefore, a better understanding of the change in costs compared to sales fluctuations will be helpful for shareholders, investors, and stock market operators to improve the implementation of analytical procedures.

The theoretical argument of the current research is that cost stickiness can be influenced by the company's strategies and their effective factors. Therefore, this study experimentally examined the effect of the company's strategies and the factors affecting it on the company's cost stickiness and identified their relationship.

3.       Research background:

Banker et al. (2011) evaluated the relationship between management optimism and cost behavior and showed that the greater the optimism (pessimism) of the management, the greater the increase (decrease) in costs in the event of an increase (decrease) in sales. In addition, the higher the analysts' forecast of future sales, the higher the incremental cost adjustment when sales increase.

Kitching et al. (2016) examined the influence of national culture on managerial decisions through cost stickiness in 39 countries and found that cost stickiness is lower in countries with uncertainty avoidance, masculinity, and long-term orientation. Therefore, culture affects the resource management decisions made by managers, and this study plays a significant role in understanding the differences.

Haga et al. (2019) investigated the cost behavior of companies in member countries of the Organization for Economic Cooperation and Development (OECD) before the reduction of corporate tax rates. According to this study, companies reduce public and administrative cost-cutting behaviors before tax rate reduction, which is proportional to the amount of tax rate reduction. Stronger evidence was provided of this form of tax revenue management in lower tax compliance and law items, as well as for private companies.

Collingtong (2020) studied cost stickiness, future corporate losses, and audit fees and showed that the higher the firm's cost stickiness, the more likely the company will incur losses in the future, and the audit costs increase as the firm's cost stickiness increases. According to studies, the cost stickiness of public companies has a smaller effect on the probability of future losses of the company.

Kordestani et al. (2012) assessed the relationship between managers' prudent decisions and cost stickiness in the Iranian capital market and concluded that management optimism in future sales reduces the stickiness of the cost of goods sold, but there is a direct relationship with the stickiness of distribution and sales costs.

Nodeh Farahani (2012) explored the effect of agency fees and managers' bonuses on cost stickiness and stated that these factors affect cost stickiness.

Sepasi et al. (2012) conducted an experimental test of cost stickiness in the Iranian capital market and indicated that the cost of goods sold, distribution and sales and administrative costs, and other operating costs in Iran's capital market have a sticky behavior.

Zanjidar et al. (2014) analyzed the factors affecting the sticky behavior of costs and reported that indicators such as the number of employees, the number of current assets of the company and the debt ratio affect the stickiness of the cost of goods sold and the total operating costs.

Rostami et al. (2015) evaluated the effect off-balance sheet financing and financial restrictions on cost stickiness and found a positive and strong relationship between the intensity of adhesion with off-balance sheet financing and financial constraints in all studied companies regardless of the industry type.

Bahadorestani (2016) investigated the relationship between economic growth and cost stickiness and showed that the costs have a sticky behavior, and the costs have an anti-sticky behavior in the period of economic prosperity, but there is no significant relationship in the recession period. However, the adhesion intensity is higher in the prosperity period than in the recession period.

Ghorbani (2017) examined the effect of managers' characteristics on cost stickiness and revealed that the personal characteristics of managers have a significant effect on cost stickiness.

Dehghanian (2018) studied the relationship between management short-sightedness and cost stickiness and indicated that costs are sticky in the capital market of Iran. In addition, the factor of management's short-sighted behavior causes the intensity of this stickiness of costs in Iran's capital market. No difference was observed in the views of managers in different industries.

Namazi et al. (2019) investigated the moderating effect of agency fees on the relationship between corporate social responsibility and cost stickiness and reported a direct effect of corporate social responsibility on cost stickiness. Moreover, the results showed the effect of agency cost on cost stickiness.

Taheri et al. (2020) assessed the relationship between company strategy, management ability, and cost stickiness and found no significant relationship between company strategy and cost stickiness, as well as management ability and cost stickiness, and both research hypotheses were rejected.

Oskou et al. (2021) explored profit management, corporate governance, and cost stickiness and showed that corporate governance reduces cost stickiness, although it is not a strong factor to reduce profit management. There was a significant positive relationship between profit management and cost stickiness.

4.       Research hypotheses:

Main hypothesis: company strategies and their effective factors affect the company’s cost stickiness.

Sub-hypotheses:

The heavy asset strategy affects the company’s cost stickiness.

The light asset strategy affects the company’s cost stickiness.

Company business strategy affects the company’s cost stickiness.

Affiliation with business groups affects the company’s cost stickiness.

Investment strategy affects the company’s cost stickiness.

Cost-oriented strategy affects the company’s cost stickiness.

The abundance of debt affects the company’s cost stickiness.

The asset revaluation strategy affects the company’s cost stickiness. 

Labor adjustment affects the company’s cost stickiness. 

Tax avoidance affects the company’s cost stickiness. 

Family ownership affects the company’s cost stickiness.

5.       Method

This applied and descriptive study investigated the relationship between the company's strategies and their effective factors with the level of cost stickiness. The study is theoretically a part of proof research, which also falls into a deductive-inductive category regarding reasoning. In addition, the research methodology is post-event, meaning that the research is based on past information.

The study population included all companies accepted in the capital market of Iran from 2015 to 2020, which were selected by systematic or targeted sampling using the elimination method.

The inclusion criteria were companies whose financial year was at the end of March and activated in the Iranian capital market for at least six years from 2015 to 2020 with available financial statements. These companies should have disclosed the information required to measure the research variables. Finally, 102 companies were selected as a sample according to the considered conditions.

5.1.                      Research model and variables:

The multiple linear regression method was used to test the hypotheses of the present research, following the previous research conducted on cost stickiness due to the quantitative and continuous nature of the dependent variable.

The dependent variable of the research is cost stickiness, which was measured according to Zhou and Yan Hong (2015) using the logarithm of general, administrative, and organizational costs (Equation 1):

                                (1)

 

SGA is the sum of general, administrative, and organizational expenses.

Independent variables include the following:

Control variables include:

1. Company size (natural logarithm of total company assets)

2. Life of companies (natural logarithm of company life)

 

6.       Results

Hypotheses testing requires the normality of dependent variables, homogeneity of variance, and lack of autocorrelation because results are unreliable without these conditions. The research hypotheses were tested after assuring the regression assumptions were established.

Table 2. The results of the stationarity test of the variables

No.	Total component	Sub-component	Measurement method
1	Company strategies and factors affecting	heavy asset strategy	Heavy asset strategy = This strategy will be calculated using the ratio of fixed assets of the company compared to the ratio of fixed assets of peer companies in the industry. Companies with a ratio of fixed assets higher than the average ratio of fixed assets in their industry are classified as companies with a heavy asset strategy. Companies with a ratio of fixed assets lower than the average in their industry are categorized as companies with a light asset strategy.
2		light asset strategy
3		Company business strategies	Strategy = The following criteria will be used to classify companies into business strategy groups: This criterion includes the most likely business strategy endorsed by the sample companies. Five parameters have been used to create a strategy score, which are: 1- The growth rate of sales 2- The ratio of the number of employees to sales {the number of employees or personnel of the company can be extracted from the notes accompanying the financial statements}  3- The ratio of market value to book value {the market value of the company is obtained from the product of the price of one share by the number of shares of the company, and the book value can also be extracted from the financial statements of the companies "balance sheet"} 4- The ratio of advertising cost to total sales {Advertising cost can be extracted from the notes attached to the financial statements} 5- The ratio of fixed assets to total assets; Each of these five variables is ranked into five categories. The companies that are in the top quintile (20%) for each of the first four variables get a score of 5, and those in the next quintile get a score of 4, and finally, for the fifth variable, these calculations are the opposite because the expectation Companies with a better business strategy tend to have a higher return on assets. Therefore, the companies in the top quintile get a score of 1, and the companies in the next quintile get a score of 2. Then the score for each company is added up each year. The maximum and minimum strategy scores a company can get are 25 and 5, respectively. The highest score represents companies looking for more innovation and risk, and the lowest score represents companies seeking to minimize costs. Therefore, increasing the strategy score indicates companies' willingness to risk and innovate to create a flexible organizational structure (Bani Mahd et al., 2014). (At first, the business strategy numbers of the companies are calculated to determine the quintiles, and then the corresponding number to be assigned to each of the quintiles is determined in the SPSS software using the Frequencies test)
4		Affiliation with business groups	GROUPD: A virtual variable equal to 1 if the company belongs to a business group, otherwise equal to 0. (Business groups mean companies that invest in each other, and finally, the main company or the parent company should prepare consolidated financial statements)
5		Investment strategy	Investment strategy = The investment strategy of companies will be calculated using the company's investment ratio compared to the investment ratio of peer companies in the industry. (Companies with an investment ratio higher than the average investment ratio in their industry are classified as companies with a heavy investment strategy (code 1). Companies with an investment ratio lower than the average investment ratio in their industry are classified as companies with a light investment strategy (code 0).
6		Cost-oriented strategy	Cost-oriented strategy = the cost-oriented strategy of companies is calculated using the ratio of cost to income of companies. The increase in the cost-to-income ratio indicates that companies do not have a suitable strategy to optimize their costs. Companies with a higher cost-to-income ratio than the average tend to adopt a cost-oriented strategy.) If the company's strategy is cost-oriented, the ratio is equal to 1 and otherwise equal to 0.
7		Abundance of debt	Abundance of Debt = (Abundance of debt of companies is calculated using the ratio of debt to income of companies. Companies with a debt ratio higher than the average debt ratio in their industry have an abundance of debt and a heavy debt strategy. Companies with less debt than their industry average are selected as companies with a light debt strategy.
8		Asset revaluation strategy	Asset revaluation strategy = If the company revaluates its assets in the year under review, it is equal to 1; otherwise, it is equal to 0.
9		Labor adjustment	Labor adjustment = It is equal to the percentage change in the number of active workers in the company.
10		tax avoidance	Tax avoidance: tax avoidance of company i in year t as a way to reduce the transfer of wealth from the company and shareholder to the government is equal to the difference between the declared tax and the fixed tax to the total assets of the first period (Henri et al., 2017).
11		Family ownership	Family Ownership = Family companies used in this research are companies with at least one of the following characteristics: 1.       1. Namazi and Mohammadi (2010), Moghimi et al. (2010), Mehrani et al. (2014), Khajavi et al. (2014), Fakhari et al. Fard et al. (2017) considered family companies as companies with at least 20% of their shares individually or in groups in the hands of family members. According to them, shareholders can influence a company's performance if they have at least effective influence. This issue is also acknowledged in accounting standard number 20. 2.       2. Namazi and Mohammadi (2010), Moghimi et al. (2010), Mehrani et al. (2014), Khajavi et al. (2014), Fakhari et al. (2016), Matoufi et al. (2017), Hashi et al. (2015), Vakili Fard et al. (2017), and Koli et al. (2003) stated for the second condition that there should be at least one member of the board of directors from the family in the company. First, the capital part of the financial statements is reviewed, and the shareholders list of the companies is assessed to determine whether family members own the company. The first page of the financial statements checks for the presence of a family member on the board. If the board of directors and its representative are the same people, then the family has a member of the board of directors in the company. For example, the Sadeghi family's Pars Rolling and Profile Company have 64.48% ownership, Eidgahi's Boiling and Oxygen Company has 77.68% ownership, and Golzadeh's Sarma Afarin Company has 52.96% ownership. According to research conducted in Iran and mentioned above more than 90 family-owned companies are active on the Tehran Stock Exchange.

Symbol	Statistics	Probability	Symbol	Statistics	Probability
ABUNDANCE_OF_DEBT	276.557	0.000	GROUP	333.254	0.000
AGE	265.365	0.000	SIZE	301.094	0.000
ASSET_REVALUATION_STRATE	259.835	0.000	STRATEGY	266.777	0.000
HEAVY_ASSET_STRATEGY	201.11	0.000	FAMILY_OWNERSHIP	241.362	0.000
TAX_AVOIDANCE	255.446	0.000	INVESTMENT_STRATEGY	402.001	0.000
COST_ORIENTED_STRATEGY	265.616	0.000	LABOR_ADJUSTMENT	366.454	0.000
LIGHT_ASSET_STRATEGY	222.308	0.000

 

As shown in Table 2, all research variables in the unit root test are smaller than 0.05, indicating that the variables are at a stationary state. In other words, the mean and variance of the variables over time and the covariance of the variables have been constant between different years. Hence, using these variables in the model does not cause false results.

 

Table 3. The F-Limer test results

Research models	F-Limer statistics	Probability
model (1)	16.625	0.000

 

According to Table 3, the probability of the F-Limer test for all research models is smaller than 5%. Therefore, the assumption of the integrated model is not confirmed for any of the models. There are individual or group effects, and the panel data method should be used to estimate the models.

Table 4. Hausman test results

Research models	Statistics	Probability
model (1)	6.254	0.1824

 

According to the research models in Table 4, the probability of the Hausman test to determine the use of the fixed effects model versus random effects is more than 5%. Therefore, the fixed effects model assumption is rejected, meaning no relationship between the estimated regression error and the independent variables. According to the Chow and Hausman test results, the most appropriate method for estimating parameters and testing hypotheses is the random effects model.

Table 5. The results of the heterogeneity of variances test

Model	Statistics	p-value	Result
model (1)	0.485	0.7864	Lack of variance heterogeneity

 

An appropriate method should be used to detect the variance heterogeneity with a valid test and avoid ignoring the violation of the assumption of homogeneity of variance and the occurrence of possible false results in the estimation process. Therefore, the Breusch-Pagan test was used with the null hypothesis based on no heterogeneity of the variance of the remaining sentences.

The results of this test in Table 6 confirm the null hypothesis that the variances are the same for the model. Therefore, the model has no heterogeneity of variance problem (p>0.05).

 

 

Hypotheses testing

Table 6. The results of the research hypotheses test

 

The significance level of the f-statistic for research hypotheses is less than 5%, and the research hypotheses are confirmed. Since the value of t statistic related to the research variables has a significant level of less than 0.05, thus the research hypotheses are confirmed. The t statistic shows that the strategies of heavy and light assets, company business, and affiliation with business groups, investment, cost-oriented, abundance of debt, revaluation, labor adjustment, tax avoidance, and family ownership affect the stickiness of company costs.

7.       Discussion and conclusion:

Knowing the behavior of costs to changes in the activity level or sales is important for managers to make decisions about planning and budgeting, pricing products, and determining the break-even point. The variable costs increase or decrease proportionally to changes in activity volume in traditional models of cost behavior in management accounting. However, the results of some researchers such as Anderson et al. (2003), indicate that the increase in costs when increasing the activity level is greater than the decrease in costs when decreasing the volume of activity. This behavior of costs is called cost stickiness or asymmetric cost behavior. Ghaemi and Nematollahi (2006), Namazi and Davanipour (2010), Kordestani and Mortazavi (2012), and Alimoradi and Ali Ahmadi (2013) are studies conducted in Iran in this field. The phenomenon of cost stickiness has several determining factors, and previous studies have tried to identify the causes of this phenomenon and have mentioned several reasons. According to Li et al. (2020), economic uncertainty is one of the possible reasons for cost stickiness.

Anderson et al.'s (2003) theory about asymmetric cost behavior is based on two observations about cost. First, many costs increase because managers make informed decisions to commit resources. Second, this change is very costly, although many sourcing commitments can be changed in the short term. The costs of this change include bearing the costs of labor adjustment such as payments related to the termination of agreed cooperation to dismissed employees, training costs of new employees, and installation and removal costs of capital equipment. The interaction between the conscious decisions of the management and labor adjustment costs introduces dynamic and complex pathways in resource selection. In addition, managers have to consider the current activity and the number of past labors according to the traditional view because these labors affect the adjustment costs incurred in the current period and the expected future sales, which influences the future adjustment costs. Labor commitment decisions are also affected by managers' motivations and behavioral biases.

The modern view theory predicts a complex pattern of asymmetric cost behavior, which includes cost stickiness and symmetric and anti-sticky cost behavior under certain conditions, showing the systematic deviation in cost stickiness and cost anti-stickiness. Many cost classes are not sticky on average, and costs that are sticky on average are not always sticky. The main sources of such systematic deviation include resource adjustment costs, management expectations, changes in a previous activity and managerial incentives. This deviation is the central axis of this theory, which should be considered in any analysis to validate or reject the theory (Banker and Bizalu, 2014).

Costs are created by resources, and the change of underlying resources in response to activity changes should be focused on understanding cost behavior to determine the factors influencing cost stickiness behavior. Company strategies define companies’ biggest plans and activities and cause fluctuations in companies’ resources and costs. Therefore, company strategies can be the most effective factor in creating cost stickiness. Previous studies have examined variables affected by cost stickiness or factors related to changes in the activity level in companies. This study aimed to investigate the strategies of the company and the factors affecting them on cost stickiness. Therefore, the main research objective was to identify the factors affecting the stickiness of costs (experimental evidence: Iran's capital market). A total of 11 hypotheses were proposed after interviewing professional experts and identifying effective factors. The results obtained from the hypotheses test showed that the company strategies and their effective factors significantly affected the stickiness of the company's costs (Table 7).

Variables	Estimated coefficient	Standard error	t test statistic	Probability of t-test
HEAVY_ASSET_STRATEGY	0.512532	0.033796	15.16545	0.0000
LIGHT_ASSET_STRATEGY	-0.569406	0.034419	-16.54353	0.0000
STRATEGY	-0.011548	0.002836	-4.071348	0.0001
GROUP	0.04201	0.00913	4.6015	0.0000
INVESTMENT_STRATEGY	-0.006361	0.00202	-3.149527	0.0017
COST_ORIENTED_STRATEGY	0.129081	0.032558	3.964648	0.0001
ABUNDANCE_OF_DEBT	0.0742	0.016378	4.530323	0.0000
ASSET_REVALUATION_STRATE	0.222508	0.032827	6.778168	0.0000
LABOR_ADJUSTMENT	0.069149	0.027958	2.47334	0.0137
TAX_AVOIDANCE	0.699824	0.294942	2.372751	0.0180
FAMILY_OWNERSHIP	0.102092	0.037976	2.688286	0.0074
SIZE	0.025605	0.007657	3.343776	0.0009
AGE	-0.006565	0.011733	-0.559532	0.8542
C	0.503822	0.121474	4.147584	0.0000
The coefficient of determination	0.773495	Durbin-Watson criterion		1.748849
Adjusted coefficient of determination	0.7651
Fisher F statistic	104.4883
Fisher F probability	0.000

Hypothesis	Independent variable	Result
The company strategies and their effective factors affect the company’s cost stickiness.	heavy asset strategy	Confirmation of direct relationship
	light asset strategy	Confirmation of inverse relationship
	Company business strategies	Confirmation of inverse relationship
	Affiliation with business groups	Confirmation of direct relationship
	Investment strategy	Confirmation of inverse relationship
	Cost-oriented strategy	Confirmation of direct relationship
	Abundance of debt	Confirmation of direct relationship
	Asset revaluation strategy	Confirmation of direct relationship
	Labor adjustment	Confirmation of direct relationship
	tax avoidance	Confirmation of direct relationship
	Family ownership	Confirmation of direct relationship

 

 

This study examined variables whose effects on cost stickiness had not previously been examined. Therefore, it can be generally said that the results of Banker et al. (2011), Kitching et al. (2016), Haga et al. (2019), Collingtong (2020), Kordestani et al. (2012), Nodeh Farahani (2012), Sepasi et al. (2014), Rostami et al. (2015), Bahadorestani (2016), Ghorbani (2017), Dehghanian (2018), Namazi et al. (2019), and Taheri et al. (2020) are consistent with those of this study.

The strategies of companies and their effective factors related to cost stickiness are one of the most neglected parts of previous studies. This study aimed to address these strategies and showed that the strategies related to the company's assets could affect cost stickiness. The heavy asset strategy had a direct relationship with the stickiness of costs, and increasing the number of the company's assets increased the stickiness of the company's costs. This cost stickiness is due to maintenance, repairs, and depreciation in companies, even inactivity, which is not affected by the amount of companies’ production or activities. Therefore, increasing or decreasing the activity level and sales fluctuations do not much affect these costs. The heavy asset strategy increases cost stickiness in companies, and the light asset strategy has an inverse relationship with cost stickiness. In other words, less fixed assets of the companies reduce the companies’ fixed costs, and the companies’ costs change according to the level of performance and sales of the companies, reducing the stickiness of the costs. The company’s business strategies were brought up as an effective factor in the stickiness of costs, which is expected to increase the return on assets. Therefore, the companies in the top quintile get a score of 1, the companies in the next quintile get a score of 2, and so on. Then, the score for each company is added up each year. The maximum and minimum strategy scores a company can get are 25 and 5, respectively. The highest score represents companies with more innovation and risk, and the lowest score represents companies seeking to minimize costs. Therefore, an increase in the strategy score indicates that companies' willingness to risk and innovate and create a flexible organizational structure increase. Business strategies have an inverse relationship with the stickiness of companies' costs. The stickiness of costs is reduced by increasing the number of business strategies, risk-taking, innovation, and creating flexible organizational structures in companies. Reducing the business strategies of companies without innovation and organizational flexibility increases the stickiness of costs. Being dependent on business groups is the next factor that can affect the stickiness of costs. The results showed that being dependent on business groups increased the stickiness of costs due to the effects of the group and the parent company, which imposed fixed costs on its subsidiary companies and affected the policies of the subsidiary companies. Being dependent on business groups makes companies move in line with the group goals instead of their organizational goals and adjust all their activities and plans based on the type of performance and activity of the group, which ultimately increases the stickiness of companies' costs. The investment strategy is the next factor that affects the stickiness of companies' costs and reduces the stickiness of companies' costs. In this study, investment does not include capital expenditures and fixed assets. Since such investments do not have fixed costs such as depreciation and other costs, they do not cause high costs or additional costs for companies and cannot increase the stickiness of costs. This type of investment increases the amount of working capital of companies and increases the power of companies to purchase raw materials due to increasing the incoming cash flows. Finally, this increase in purchasing power reduces the companies' costs and cost stickiness. Companies with a cost-oriented strategy have higher stickiness in their costs, which increases by increasing the cost-oriented strategy or company's costs. The abundance of debt is directly related to the cost stickiness, and companies with higher debt have higher cost stickiness. In other words, the abundance of debt in companies is due to capital expenditures and the purchase of fixed assets due to the lack of capital from interest-bearing debts. These additional interests increase the assets owned by companies and ultimately raise the fixed costs such as depreciation, which is not related to the activity level and enhances the cost stickiness. Asset revaluation strategy also increases cost stickiness. Companies using the asset revaluation strategy to increase capital have many fixed assets. Therefore, large or heavy fixed assets increase the fixed costs, which are fixed with fluctuations in the activity level and increase the stickiness of companies' costs. Labor adjustment is also related to the stickiness of companies' costs with a direct effect. An increase/decrease in the labor force increases/decreases the stickiness of costs. The costs of salary and employee benefits are not related to the activity level and sales of the companies, which are fixed and paid annually. Companies with no activity have costs, and the increase in the labor force increases the stickiness of the cost. Tax avoidance also has a direct relationship with the stickiness of companies' costs, and the increase in tax avoidance in companies increases the stickiness of companies' costs. Tax reduction and tax avoidance are the motivations for cost stickiness and increased fixed costs in companies. Family ownership also affects the level of cost stickiness with a direct relationship. The increase in family ownership in companies increases the stickiness of companies' costs. Family ownership is an effective factor in all company strategies, and the owners of family-owned companies try to increase the company's expenses to pay less tax. One of these solutions is increasing assets and fixed costs such as depreciation, which increases the stickiness of costs. Increasing the fixed assets according to Iran's inflationary conditions outwardly increases the amount of wealth and final yield of the company's shareholders, but inwardly increases the owner's wealth and reduces the taxes and tax avoidance.

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