1. Are Costs Really Sticky
Are Costs Really Sticky? Evidence from Publicly Listed Companies in the UAE 陈娜

2. Outline The Basic Information of the Paper Abstract Literature Review
Hypothesis
Methodology and Analysis
Results and conclusions
Analysis

3. The Basic Information of the Paper
Title: “Are Cost Really Sticky? Evidence from Publicly Listed Companies in the UAE”
Author: Fernando Zanella, Peter Oyelere and Shahadut Hossain
Publisher: Applied Economics （SSCI）
Year: 2015

4. Abstract
This article measures the degree of adjustment between operating revenues and costs for publicly listed companies in the United Arab Emirates (UAE) 阿拉伯联合酋长国.
The paper finds that Employment Protection Legislation (EPL) is a main reason that costs adjustments during decreasing sales is curbed due to the associated costs of firing employees.

5. Literature Review Traditional accounting cost models ACJ Model
Traditional accounting cost models assume that variable costs change proportionally in response to an upward or downward fluctuation in demand.
Anderson et al. (2003) showed that Selling, General and Administration(SG&A) costs decrease by less than 1% when sales decrease by 1%, while reacting closer to the proportion of change when sales actually increase. This asymmetric response between costs and sales, depending on market trends, became typified as cost stickiness.

6. Literature Review
Asymmetric response by the managers to changes in activity levels may be for a variety of reasons
Adjustment costs asymmetry: Facing a decrease in activity levels, managers are more likely to expect a trend reversion in the future.
Agency costs: Agency costs or the principal agent problem arise when agents try to maximize their utility functions even when it would not be in the best interest of the principals (Arrow, 1971).
The authors will show sticky costs focusing on the behavior of firms listed in the UAE.

7. Hypothesis The research goals are
To assess the impact of variation in sales on cost stickiness with up to three lags;
To assess the impact of the change of the country GDP on the SG&A-to-sales ratio and
To assess the impact, if any, of total assets and salaries to sales ratio and labor intensity on the SG&A cost stickiness.

8. Hypothesis
H1. Costs are sticky with one period lag due to a change in sales.
That is, a decrease in sales shows a decrease in the SG&A costs, but not in the same proportion that an increase in sales leads to an increase in SG&A costs. H1
H2 and H3. Costs are sticky with additional two to three yearly lags due to a change in sales.
This hypothesis tests whether costs reverse the stickiness during the subsequent periods of a downturn, when managers may have fulfilled their positive expectations.
H2&3

9. Hypothesis H5. Cost stickiness is influenced by employee intensity.
H4. Costs stickiness is influenced by changes in the GDP growth rate and total assets-to-sales ratio.
This hypothesis considers an external factor (GDP) to the company as influential to the costs asymmetry behavior as well an internal factor (Assets), both of which may impact the rate of change of the adjustment costs.
This hypothesis examines whether or not the number of employees-to- sales ratio has an impact on variable costs

10. Methodology and Analysis
i = 1, n and t = 1, t indicate firm and year
ε = disturbance
SG&A = selling, general and administrative
Costs
Sales = revenue;
D is a dummy that takes the value of 1 if sales revenue decreases from year t–1 to t, and 0 otherwise
GDP is the gross domestic product
Assets is the asset intensity (assets to sales);
Employee is the employee intensity (employees to sales).

11. Methodology and Analysis

12. Results and Conclusions
The F-test, presented in Table 2, was used to test the individual firm and time effects. The results were highly insignificant, which rules out the existence of significant firm and time effects.

13. Results and Conclusions
The p-values for the tests of serial correlation and hetero-scedasticity for each of the five models are presented in Table 3. Table 4 shows results for common and individual unit root process.
Results show that all variables in log form, as used in the regression, are stationary, i.e., the null hypothesis for non-stationary is rejected

14. Results and Conclusions

15. Results and Conclusions
The study investigated the existence or nonexistence of sticky costs by analyzing the degree of adjustment between operating revenues and costs for publicly listed companies in the UAE.
We conclude that the absence of a robust EPL in the UAE is a possible explanation for the lack of cost stickiness found in this study. The reason for that is that weaker EPL in the UAE for the majority migrant expatriate workforce pushes the country closer to a standard textbook realm.

16. Analysis
Zanella and Oyelere et al. (2015) suspected whether stickiness exists or not. The author used UAE listed companies as samples to test the changes of sales, GDP growth and labor-intensive. The results show that if the proportion of operating income and cost is adjusted in time, cost stickiness will not be significant.
The reason why sticky cost is likely to be generated is that information delivery is not equal. If the information can be delivered on time and make the appropriate adjustments, the cost may not be "sticky" characteristics. However, UAE as a sample is a less stable economic and political sample that may have an impact on the data and need to expand the sample size for further study.

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