The Predictive Power of Cost Stickiness on the Long- Term Firm Value: A Management Expectation Theory

Document Type : Original Article

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Tanta University, Egypt

Abstract

Sticky-cost behavior is considered a complex phenomenon and a great challenge for practice. Since then, the management of the firm must prudently expect future demand to make rational decisions regarding whether to keep or drop the committed resources, which in turn increases or decreases the degree of cost stickiness. Therefore, the main purpose of this research is to investigate the impact of sticky cost behavior on predicting the future value of the firm. The data of the current study were obtained from the most actively traded non-financial 84 firms listed on EGX-100 from 2013–2018. The sample selection is based on quarterly data on revenue and costs to measure the cost stickiness (3311 observations). A Panel data analysis was used to test the research proposal model. The results of this research implied that sticky cost behavior with its different components has a positive impact on the firm's value in the long run, and this result perfectly coincides with the management expectations lens, which implies that the optimistic expectations of management regarding future demand encourage managers to keep slack resources and bear the extra sticky costs associated with this decision. Then, based on these optimistic expectations, in the long run, both behavior and performance will be positively influenced, which enhances the overall long-term value of the firm.

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