Original Research Article | OPEN ACCESS
Asymmetric Cost Behaviour: Evidence from Nigerian Companies

Ishaku THOMAS1 Peter TERU2

Department of Accounting, Adamawa State University, Mubi,Adamawa State.;

For correspondence:-  Ishaku THOMAS   Email: ishaku567@adsu.edu.ng

Received: Aptil 2, 2020        Accepted: June 19, 2020        Published: 26 June 2020

Citation: THOMAS I.TERU P. Asymmetric Cost Behaviour: Evidence from Nigerian Companies. Account Tax Rev 2020; 4(2):99-116 doi:

© 2020 The authors.
This is an Open Access article that uses a funding model which does not charge readers or their institutions for access and distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0) and the Budapest Open Access Initiative (http://www.budapestopenaccessinitiative.org/read), which permit unrestricted use, distribution, and reproduction in any medium, provided the original work is properly credited..

Abstract

This study examines the consequence of the managerial operating decision on cost behaviour through the lens of asymmetric cost behaviour. Cost behaviour is of considerable significance to managers and analysts as well as management accountants. Traditionally, cost function has been assumed to be always linear in function. However, the contemporary empirical studies refuted the assumption that sometimes costs are asymmetric in function due to resource adjusting decision. Cost asymmetry affects the predictive ability of analysts’ and management accountants’ measurement. In order to examine the asymmetric cost behaviour, pooled data were collected from companies listed on the Nigerian Stock exchange. The study utilisedthe pooled research design. The study obtained 1,089 firm-year observations for ten years. The hypotheses of the study were tested using pooled ordinary least square regression. Results of the study revealed that operating cost was asymmetric. Operating cost decreased by only 84.1% when 100% decrease was expected. Furthermore, the result showed that asymmetric cost behaviour increases with a positive increase in free cash flow. However, asset and employee intensity do not significantly increase cost asymmetry. Hence, the study recommends that analysts, management accountants and managers should take into consideration that cost behaviour is not always linear in function. Managers may adjust resources based on prudent cost management strategy to avoid a higher degree of cost asymmetry.

Keywords: asymmetric cost behaviour, adjustment cost, asset intensity, free cash flow, employee intensity.


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