Uncertainty avoidance and cost stickiness

Submission note: A thesis submitted in total fulfilment of the requirements for the degree of Doctor of Philosophy to the Department of Accounting, La Trobe Business School, College of Arts, Social Sciences and Commerce, La Trobe University, Bundoora.

A recent development in research on cost behaviour is the emergence of the concept of sticky cost behaviour. Anderson, Banker and Janakiraman (2003) present an alternative theory of cost behaviour, the sticky cost hypothesis. Cost behaviour is considered to be an outcome of deliberate managerial decisions on levels of committed resources rather than mechanical responses to changes in cost drivers (Anderson, Banker, and Janakiraman, 2003; Banker and Byzalov, 2014). The decisions are made by managers in accordance with available information including direction, magnitude and duration of cost driver changes. As managers’ use of information in decision making can be influenced by human, organisational and institutional factors, these factors can also moderate managers’ decisions on levels of committed resources and consequently the stickiness of costs. The study presented in this thesis seeks to advance the understanding on antecedents and implications of sticky cost behaviour by examining two research questions. First, effects of human factors on the occurrence of cost stickiness are examined by testing the relationship between the cross-national differences in a human attribute, uncertainty avoidance, and stickiness of costs. Second, the implications of recognising sticky cost behaviour in developments of management accounting practices are examined by testing the application of a revised cost function that is developed in line with the sticky cost hypothesis in cost prediction practice. Findings of the study show that international differences in the degree of cost stickiness can be attributed to the degree of uncertainty avoidance and the legal system of a country. Under each legal system, countries with higher levels of uncertainty avoidance generally have higher degrees of cost stickiness. The application of a revised cost function in cost prediction generates results that are different from those based on the use of a traditional linear cost function. However, the differences in results are not always significant.