Financial and Banking Strategic Studies

Examining the relationship between cost stickiness and the conclusion of bank contracts

Document Type : Original Article

Authors

Sharzad Seraj
Mina Kalantari Khalilabad

Department of Accounting, Islamic Azad University, South Tehran Branch, Tehran, Iran.

https://doi.org/10.22105/fbs.2024.477263.1110
Abstract
Purpose: Traditional cost accounting classifies costs into two types: fixed and variable. The implicit assumption is that the relationship between cost and activity is symmetric for increases and decreases in activity. In contrast, asymmetric cost behavior constitutes a new way of thinking about cost behavior. The cost stickiness model is considered an alternative to cost behavior, which is caused by the driving forces of cost behavior, resource adjustment, and commitment decisions made by managers. Therefore, based on this argument, the current research aims to examine the relationship between cost stickiness and the conclusion of bank contracts.
Methodology: The current research method is quantitative, correlational, and causal, and the hypothesis analysis method is correlational. The statistical sample of this research comprises 24 private and public banks listed on the Tehran Stock Exchange, selected via simple random sampling during the period 2014 to 2023.
Findings: The results of the hypothesis showed that cost stickiness increases the likelihood of bank contracts. It means that when activity levels decrease, managers of banks with sticky costs respond more slowly to cost reductions, leading to lower cost savings. Therefore, as bank sales or expected cash flows decline, the risk of bank default increases.
Originality/Value: Cost stickiness is expected to be associated with a higher cost of debt for several reasons. First, more sticky costs may lead to greater profit variability. Banks with more sticky costs show a greater decline in profits than banks with less sticky costs.

Keywords

Cost stickiness
Bank contract
Cost behavior

Subjects

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Financial and Banking Strategic Studies
Volume 3, Issue 1
Spring 2025
Pages 28-40

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