The impact of adjustment, agency, and political costs on cost stickiness of publicly listed companies in the Philippines from 2009-2019

• Main Authors: Catalig, Angela Bianca N., Decena, Charles Justin M., Franco, Maria Denise A., Ventura, Ma. Colleen L.
• Format: text
• Language: English
• Published: Animo Repository 2021
• Subjects: Cost effectiveness; Cost control; Accounting
• Online Access: https://animorepository.dlsu.edu.ph/etdb_acc/4
• Institution: De La Salle University

With a rapidly changing business environment, it is in the best interest of companies to consider cost behavior analysis. The traditional method of analyzing cost behavior states that within the relevant range, total fixed costs do not change when there is an increase or decrease in units produced while total variable costs increase as the number of units produced rise. However, recent research shows that studying the traditional cost behavior within a firm is not enough to fully understand elements that influence management behavior. Studies have pinpointed a cost-related issue wherein the magnitude in the rise in costs in response to increase in sales is not the same when there is a decline in costs in response to a decline in sales. Initially, this phenomenon was called cost asymmetry but later gained a more widespread name of cost stickiness. For firms to be more efficient, and therefore be more competitive in the growing international market, examining cost stickiness in a company is necessary. To analyze the factors that cause cost stickiness, the research study discusses the evidence of the three latent variables and adjustment cost theory, agency theory, and political process theory. Latent variables were analyzed through proxy variables to assess the behavior of the management in relation to the changes in the level of activity. Under the adjustment cost theory, the different factors of production were analyzed to determine how these contribute to cost stickiness. Under the political process theory, the different political risks were tackled in relation to a firm’s compliance to determine how the management’s response affects cost stickiness. Under the agency theory, the different incentives that may affect a manager’s behavior were assessed to determine how maximizing their own utility can cause cost stickiness. The study aims to determine the impact of adjustment costs, agency costs, and political costs on cost stickiness of publicly listed companies in the Philippines through the use of the structural equation model (SEM). Through the use of confirmatory factor analysis, measurement models were constructed to confirm the latent variables of sticky cost behavior. The system used to construct the models was R software. The researchers will gather financial data from Compustat Global IQ database. In order to properly apply empirical models, the researchers gathered financial data of publicly listed firms from 2009-2019. After gathering the data, the researchers will conduct a multiple regression analysis to determine cost stickiness with and without latent variables. Following this, the confirmatory factor analysis is conducted to measure the latent variables. Lastly, an exploratory factor analysis will be used if a latent variable does not pass the fit statistics. It was found that the cost stickiness of cost of goods sold (COGS), selling, general and administrative (SG&A) expenses, and total cost of goods sold and selling, general and administrative expenses (TC) without latent variables were significant. No latent variable had a significant effect on the cost behavior of COGS. Furthermore, only adjustment costs and political costs had significant impacts on both SG&A expenses and TC. However, political costs decreased the cost stickiness of SG&A expenses but increased the stickiness of the TC.