Asymmetric Cost Behavior: Review of Literature and Methodology

This paper synthesize the growing literature on asymmetric cost behavior which is a new way of thinking about costs and, by extension, earnings. While the traditional cost behavior model describes a mechanistic relation between activity and costs, this alternative view recognizes the primitives of cost behavior: resource adjustment costs and managerial decisions. These primitives give rise to “sticky” and “anti-sticky” costs, along with traditional “fixed” and “variable” costs as extreme cases. This paper formulate an integrated framework of asymmetric cost behavior and review the empirical evidence in support of this framework. Furthermore it clarifies empirical issues and methodologies in the related literature which is important for increasing understanding of researchers in this field. Finally it reviews the implications of cost behavior research in understanding of issues related to financial, cost and managerial accounting and discuss opportunities for future research.