Analysis of cost behavior in periods of stability and crises: Is there an impact of managerial overconfidence? (an empirical analytical approach on Egyptian companies)

Document Type : Original Article

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Accounting department Faculty of Commerce Zagazig University

Abstract

In light of the adoption of many administrative decisions in the financial markets on the extent to which managers understand the behavior of the cost of their companies, and what this behavior represents is an important criterion for the quality of those decisions, where the proper appreciation of them contributes to taking many relevant decisions such as product decisions, planning and control processes, which reflected positively on the competitiveness of the company, the present research uses (Anderson et al., 2003) model as a first objective to determine the nature of actual cost behavior in the Egyptian market as a pioneering model in this field; as a second objective to test the extent of the existence of variation in the nature of this behavior in the periods of financial and political crises, as a third objective and the last one to test the effect of managerial overconfidence as one of the important determinants of this behavior in light of the positive role of executives in the formulation of many of the policies and strategic options; the current research relies on two regression equations, the first of which represents the cost of goods sold, while operational expenses represent the second, and by relying on 125 companies representing the Egyptian corporate community, distributed over various sectors, during the period 1999-2017, which were divided into four basic periods, the first of which: before the period of the crisis, the second: during the financial crisis, the third: during the political crisis, and the most recent: after recovering from crises. With the use of the "Random Effect Model" for the two research equations in different periods, the results of statistical tests in this regard indicated that the research has found the significance of the variable for the asymmetric behavior of both types (cost of sold goods and operating expenses) in the two stability periods, so that the two rates of their decline associated with the decrease in volume of activity are less than the two rates of increase associated with increasing the volume of activity with the same rate of decrease, meaning that they have stickiness, whereas the same variable is characterized by weakness for both types in the period of the financial crisis, and for operational expenses in the period of the political crisis, with the proper significance of the cost model of goods sold in the period of political crisis and the researcher observed with it there is a decline in the percentage of stickiness of the cost of the sold goods compared to its percentage in the two stability periods, this means that the results of the two periods of the crisis are different compared to the results of the two periods of stability and then the directors ’decisions regarding modifying resources are affected as the volume of activity changes with the financial and political crises. Finally, the research has reached the significance of the effect of managerial overconfidence on the inconsistency of the cost of the goods sold and operating expenses only during the two stability periods, and the lack of significance in the crisis periods.

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