Zabihollah Rezaee will publish in Asian Review of Accounting
For release: February 6, 2019
Professor Rezaee, the Thompson-Hill Chair of Excellence, PhD coordinator and Professor of Accountancy, recently coauthored a paper with Ling Tuo, an Assistant Professor of Accounting at the Lawrence Technological University and Shipeng Han, an Assistant Professor at the University of Massachusetts Dartmouth. Both are former FCBE Ph.D. students. The paper "Is Cost Stickiness Associated with Management Earnings Forecasts?" will be published in Asian Review of Accounting.
This paper investigates the association between a firm's degree of cost stickiness and its propensity to release MEF. We posit that both MEF and cost stickiness are influenced by strategic choices made by management and propose two potential explanations for this association. First, when management is optimistic about future performance, this increases both cost stickiness and management's willingness to reveal its expectations through an earnings forecast. Second, cost stickiness increases the information asymmetry between management and investors and thus management is more likely to issue an earnings forecast to mitigate the perceived information asymmetry. Using a sample of 24,995 firm-year observations during 2005-2016, we find a positive association between cost stickiness and (a) propensity to issue an MEF, (b) frequency of MEF, and (c) good MEF news. Additional tests suggest both information asymmetry and managerial optimism explain the relation between MEF and cost stickiness. We also find that the cost stickiness-MEF relationship is more pronounced for more efficient firms and lower resource adjustment cost. Our results provide new evidence to further our understanding of how management integrates its external financial reporting and internal operating decisions.