The Effect of Earnings Management on Costs Stickiness

The results of the recent research on the behavior of costs show that the costs do not change proportionally to the change in the sales. In other words¡ when the sales increase¡ the costs also increase. However¡ when the sales decrease¡ the costs do not decrease proportionally to the sales. This asymmetrical costs behavior is called the costs stickiness. Furthermore¡ some managers do earnings management to mislead shareholders about the company''s financial performance. In this paper¡ the effect of earnings management on costs stickiness is determined. In order to do so¡ a sample of 115 companies of the listed companies in Tehran Stock Exchange during 2007-2015 (1385-1393 Iranian calendar) was selected as the statistical sample. The collected data were analyzed through the multivariate regression model and the panel data. The results of analysis show that the earnings management decreases the costs stickiness. Conceptually speaking¡ mangers¡ to avoid reporting losses or decreasing of earnings¡ managers do earnings management through decreasing the costs when sales decrease which leads to a reduction of cost stickiness.