Manager decisions in trade-off between cost stickiness and income smoothing

The managers' motivations and decisions about resources adjustment and decreasing earnings volatility are related with each other. When sales are decreasing, the managers with income smoothing incentives intend to adjust resource more and thus the degree of cost stickiness is decrease. On the other hand, when sales are decreasing the managers with low adjustment of resources and increasing cost stickiness caused the volatility in income. The main aim of this paper is to investigate the trade-off between cost stickiness and the income smoothing by managers. The sample of this paper is 99 companies listed on Tehran Stock Exchange during the period 2010 to 2016. The research method is association study and the results of this research with using the panel data regression analysis method show the negative effect of cost stickiness on the income smoothing. Also, income smoothing will reduce cost stickiness. The results show that the outcome of managers' behavior to maintain or resource adjustments as well as profit reporting are in contradiction with each other and as a result the managers should consider the cost of resource adjustments and the smoothing of income trends, and finally make the appropriate and reasonable decision.