Cost stickiness: state of the art of research and implications

Cost functions as the foundation of managerial decision making usually assume a linear cost function with fixed and variable costs. The latter are dominantly regarded as being identical for increasing and for decreasing activity levels. However, empirical research shows that the decline in costs is smaller for decreasing than the rise in costs for increasing activity levels for the same amount of change. This effect of asymmetric cost behaviour is called ‘cost stickiness’ or ‘cost remanence’. Our paper provides an overview of the causes and occurrences of cost stickiness. Furthermore, the empirical findings on cost stickiness using regression models with archival financial accounting data are reviewed and analysed. We explore different determinants of the effect of cost stickiness. A critical look at the findings and methods of empirical studies reveals the limitation of current research and opens new streams for further research. Finally, implications of the existence of sticky costs for management accounting research and practice are drawn.