Evidence of sticky costs in banks of Argentina, Brazil and Canada
by Marcela Porporato; Eliana Werbin
International Journal of Financial Services Management (IJFSM), Vol. 5, No. 4, 2012

Abstract: An assumption made in traditional cost accounting books is that variable costs move proportionately with revenues. Recent studies on sticky costs challenged this assumption. This study shows that sticky costs were observed in banks of Argentina, Brazil and Canada in 2004-2009. Total costs are sticky because the magnitude of the increase associated with an increase in the volume of activity (Argentina 0.60%, Brazil 0.82% and Canada 0.94%) is larger than the magnitude of the fall associated with a decrease of the volume (Argentina 0.38%, Brazil 0.48% and Canada 0.55%, respectively). These results suggest that cost structure and macroeconomic climate might be valid explanations for cost behaviour. Banks with higher proportions of fixed costs show lower reductions of costs when demand declines. Banks that operate in an uncertain economic environment show the lowest change of costs levels when demand changes.

Online publication date: Sat, 29-Nov-2014

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