Title: Evidence of sticky costs in banks of Argentina, Brazil and Canada

Authors: Marcela Porporato; Eliana Werbin

Addresses: School of Administrative Studies, York University, 4700 Keele St., Toronto, ON, M3J 1P3, Canada. ' Facultad de Ciencias Económicas, Universidad Nacional de Córdoba, Av. Valparaiso S/N, Córdoba, Argentina

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.

Keywords: sticky costs; banks; Argentina; Brazil; Canada; active cost management; cost structure; macroeconomic climate; cost accounting; variable costs; fixed costs; uncertainty; banking industry.

DOI: 10.1504/IJFSM.2012.048834

International Journal of Financial Services Management, 2012 Vol.5 No.4, pp.303 - 320

Available online: 31 Aug 2012 *

Full-text access for editors Access for subscribers Purchase this article Comment on this article