Original Research Article | OPEN ACCESS

Asymmetric Cost Behaviour: Evidence from Nigerian Companies

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

Citation: Asymmetric Cost Behaviour: Evidence from Nigerian Companies. Account Tax Rev 2005; 4(2):99-116 doi:

© 2005 The authors.
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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.