Cost stickiness behavior and financial crisis: Evidence from the UK chemical industry

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Abstract

The global financial crisis has created pessimism in terms of prospects of sales rebounding in the future. Therefore, this study aims to examine the stickiness behaviors of firm costs pre, during and post the period of the financial crisis. It uses a sample from the UK chemical industry over the period from 2001 to 2015. The ABJ sticky cost model is applied with the following cost categories: total costs, cost of goods sold, operating costs, selling, general and administrative costs, salaries and benefits, and finance costs. The ABJ sticky cost models are run separately for each cost category over pre (2001-2007), during (2007-2009) and post (2010-2015) the financial crisis. The study finds that total costs have behaved as sticky pre the financial crisis and anti-sticky during and post the financial crisis. Furthermore, cost of goods sold has changed from sticky (pre and during the financial crisis) to anti-sticky (post the financial crisis). Furthermore, salaries and benefits costs have changed from sticky (pre the financial crisis) to anti-sticky (during the financial crisis) and financing costs from sticky (pre the financial crisis) to anti-sticky (after the financial crisis). However, there is no variation in the behavior of selling, general and administrative costs pre and post the financial crisis.

Keywords: Cost Stickiness, Financial Crisis, Chemical Industry, the UK

Authors’ individual contribution: Conceptualization – A.H. and M.Y.; Methodology – A.H. and M.Y.; Writing – A.H. and M.Y.

Acknowledgements: We would like to thank the anonymous referee for helpful comments and suggestions. This paper has been benefited from the useful comments and suggestions made by the review committee and participants of the British Accounting and Finance Association (BAFA) annual conference (April 2019, the UK).

JEL Classification: L90, M41

Received: 16.09.2019
Accepted: 08.01.2020
Published online: 16.01.2020

How to cite this paper: Hassanein, A., & Younis, M. (2020). Cost stickiness behavior and financial crisis: Evidence from the UK chemical industry. Corporate Ownership & Control, 17(2), 46-56. https://doi.org/10.22495/cocv17i2art4