Proceedings of 29th International Business Research Conference

Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
Are Costs Really Sticky? Evidence from Publicly Listed Companies in the
Fernando Zanella, Peter Oyelere and Shahadut Hossain
The paper measures the degree of adjustment between operating revenues and costs for
publicly listed companies in the United Arab Emirates (UAE). Traditional cost models assume
that variable costs change proportionally in response to an upward or downward fluctuation in
demand. However, in recent years such an assumption has been questioned by a variety of
papers from the economics and accounting fields. Typically, cost stickiness is defined when
costs decrease by less than 1% when sales decrease by 1%, while reacting closer to the
proportion change when sales increase. This study, unlike the vast majority of the literature, did
not find cost stickiness in the UAE after using panel data regression analysis. The main
explanation is that UAE has mostly expatriate labor force that does not have the typical benefits
of the employment protection legislation (EPL). EPL is a main reason that costs adjustments
during decreasing sales is curbed due to the associated costs of firing employees.
Field of Research: Accounting
Keywords: Cost Stickiness, Employment Protection Legislation, United Arab Emirates
Dr. Peter Oyelere; (Corresponding Author), Department of Accounting; United Arab Emirates University; PO Box 15551, Al Ain,
UAE; Tel: +971-503598399; Email: [email protected]
Dr. Fernando Zanella, Department of Economics and Finance, United Arab Emirates University
Dr. MD Shahadut Hossain, Department of Statistics, United Arab Emirates University