Impact of Macro Economic Factors on Operating Cost Stickiness in the Tehran Stock Exchange

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1 2015, TexRoad Publicaion ISSN: Journal of Applied Environmenal and Biological Sciences Impac of Macro Economic Facors on Operaing Cos Sickiness in he Tehran Sock Exchange Mohammadreza Bakhiary 1, Mohammad Ghajar 2, Soofi Nikmardehrani 3 1 Deparmen of accouning, maser of accouning, Sama echnical and vocaional raining college, Islamic Azad Universiy, Andisheh Branch, Andisheh, Iran 2 Deparmen of economic, maser of economic, cenral Tehran branch, Islamic Azad Universiy, Tehran, Iran 3 Deparmen of accouning, maser of managemen, Sama echnical and vocaional raining college, Islamic Azad Universiy, Andisheh Branch, Andisheh, Iran Received: January 27, 2015 Acceped: March 31, 2015 ABSTRACT This research reviewed he impac of macroeconomic facors (indusrial producion growh, naional income, capial marke reurn) on operaing cos sickiness for companies lised in he Tehran sock exchange. Using he eliminaion mehod, 91 firms were chosen and daa was exraced from he firms and he Cenral Bank library o es he hypohesis. The variables esed used mulivariable linear regression. This research has based on annual observaions from he years 2007 o The resuls showed ha here is a meaningful posiive relaion beween indusrial producion growh and operaing cos sickiness and a meaningful posiive relaion beween capial marke reurn and operaing cos sickiness. No meaningful relaion was found beween naional income and operaing cos sickiness. KEYWORDS: Operaing cos sickiness, Indusrial producion growh, Naional income, Capial marke reurn 1. INTRODUCTION Macroeconomic facors (indusrial producion growh, naional income, capial marke reurn) play an imporan role in he global economy. The economic healh of a counry can be judged by is indusrial producion, which represens appropriae economic growh for shareholders. Alongside indusrial producion growh, naional income is a crucial ool for macroeconomic facor and is an index o deermine if social economic advanages depend on he free marke. The effec of a ne income for a specified period beyond he capial consumpion allowance of a counry and capial marke reurn is imporan for measuring ne gain for invesors. Informaion abou he amoun of expendiure agains changes in sales or sale aciviy levels help managers make decisions abou planning and budges, pricing of producs, deermining break-even poins, and oher managerial decisions. To ake acion and for planning, managers require daa on cos effeciveness using a propensiy score, which measures qualiy spending agains possible changes in aciviy level and macro-economic facors. The propensiy score is a model ha defines how coss reac o a change in he level of aciviy or o macroeconomic facors. Some heories asser ha coss have an inverse reacion on ascending-descending changes in aciviy level. This characerisic is called cos sickiness, and i challenges he relaion beween changes in coss in response o a decrease-increase in aciviy level. Cooper and Kaplan (1998) assered ha cos sickiness occurs when managers direc a supply of conrac coss ha is no cos-effecive. The managers maybe decide o keep he all resources in he way; while a firm may repor a decrease in revenue, coss do no decrease like revenue does. Macroeconomic facors are effecive because hey make a series of specific decisions agains indusrial producion growh, naional income, capial marke reurn ha affec cos sickiness. Tradiionally, cos models have drawn of he aenion of managemen accounans who decide on and conrol aciviy. The daa shows ha managers are now looking for he mos effecive elemens on cos behavior. The presen sudy reviewed he impac of indusrial producion growh, naional income, and capial marke reurn on operaing coss sickiness of firms as a whole and separaely LITERATURE REVIEW The relaionship beween coss and aciviy was observed by Solomon and Sabos in he 1960s and 1970s. Subsequenly, a number of heories have been advanced. Noreen (1994) saed ha coss are eiher fixed or variable, depending on he level of aciviy; variable coss change based on a change in he level of aciviy. * Corresponding Auhor: Mohammadreza Bakhiary, Deparmen of accouning, maser of accouning, Sama echnical and vocaional raining college, Islamic Azad Universiy, Andisheh Branch, Andisheh, Iran. mohammadrezaaa1984@gmail.com 268

2 Bakhiary e al.,2015 Esimaing cos behavior wihou considering cos sickiness will produce misleading resuls. Whie e al. (1977) saed ha he Noreen s heory is unreliable. For example, selling, general and adminisraive (SGA) expenses form a percen of defined sales for he analysis of financial saemens. Mins (1992), however, says ha, if here is a disproporionae increase in coss agains sales, financial saemens will show a weakness in managemen conrol. This analysis may be misleading, because if SGA expenses are sicky, as sales increase a proporional increase in coss will occur, bu if sales decrease, here will no be a proporional decrease in coss. Cos models relae cos behavior o accouning science, relaing he difference beween fixed variable coss o changes in aciviy level. I is assumed ha fixed coss are separae from aciviy level. In he sub-complex of a radiional model of cos behavior, some heories produce very differen resuls for his model from he change in real coss. The research of Anderson e al. (2003) on 762 firms over a 20-year period showed a 0.55% increase for a 1% increase in SGA expenses, bu a 1% decrease for a 0.35% decrease in SGA. They indicae ha execuive coss will show differen reacions from ascending and descending changes in sales revenue. In oher words, cos sickiness means a possible increase in coss for an increase in revenue is much more effecive han a simulaneous decrease in revenue. Suberamaniam and Weidenmier (2003) developed he basics of cos sickiness dependence on he cos of iems. This sickiness conribues o he dimensions of managemen behavior. Anderson e al. (2003) and Suberamaniam and Weidenmier (2003) found ha his sickiness is conneced o he economy. Noreen and Sodersorm(1997) do no share his view and Cooper and Kaplan (1997) believe he behavior of coss resuls from managemen characerisics. Their fundamenal heory say ha cos sickiness resuls from a series of managerial conracs o increase resources (raw maerial, human capial, ec.), he violaion of which will resul in loss (decrease in demand). Managers may decide o reain heir resources. Firms may repor a decrease in revenue, bu he coss will no decrease. Oher research on he difference in inensiy of cos sickiness indifferen secions of an organizaion clearly shows ha inensiy is relaed o he core secions. Calleja (2005) analyzed cos sickiness using daa from companies in he US, Briain, France and Germany. His resuls showed ha an increase of 1% in sales, increased operaing coss 97%, and a decrease 1% in sales decreased operaing coss 91%. He also found ha he inensiy of cos sickiness in France and Germany was higher han in he US and Briain. Mark (2003) focused on coss sickiness for California Airways. He used monhly daa from June 1988 o December 2003 a 61 offices of California Airways and has found ha sickiness was subsanial for operaing coss, bu no for wage coss. In addiion, wage coss showed a faser reacion o a decrease in aciviy o an increase. Banker and Chen (2003) prediced a rae of reurn on invesmen ha reflecs he sicky behavior of coss. They compared his model wih hree non-sicky behaviors and found ha heir model was more sensiive o predicing a reurn on invesmen. Anderson and Lenin (2003) pinpoined a difference in inensiy difference in cos sickiness beween indusries and a similar difference beween operaing coss, such as markeing, research, developmen, and wages. Namazi and Davanipour (2009) researched he real behavior of cos sickiness in he Tehran sock exchange. They found ha he inensiy of cos sickiness decreased as income decreased and ha his inensiy was higher in companies having more oal asses agains sales. Poorzamani and Bakhiary (2012) invesigaed he impac of he inflaion rae, and shor-erm and long-erm ineres raes on operaing cos sickiness (OCS) in he Tehran sock exchange. They found ha here is a meaningful negaive relaion beween inflaion rae and operaing cos sickiness, a meaningful posiive relaion beween shorerm ineres raes and OCS, bu no meaningful relaion beween long-erm ineres raes and OCS. Shafeyi and Mohammadzadeh (2009) compared he behavior of cos sickiness in Iranian firms wih ha of companies in he US, Briain, France and Germany. They replaced he radiional model wih cos sickiness, resuling a relaion beween aciviy level changes and sales levels. The resuls showed a 1% increase in SGA expenses resuled from a 0.43% growh in he level of sales. 2. Research Hypoheses The main hypohesis of his sudy is ha macro-economic facors affec operaing cos sickiness. There are hree secondary hypoheses. The firs is ha indusrial producion growh affecs OCS. The second is ha naional income affecs OCS. The hird is ha capial marke reurn affecs OCS. 3. Research Model and Variables This model used muli-variable linear regression. 269

3 ,, = +, +,, +,, h +,, +,, +, (1) 3.1. Toal operaing cos This cos is calculaed from income saemens of companies on he Tehran sock exchange and OCS as he dependen variable is compued using a dummy variable as follows: when he revenue from sales decreases for wo periods, he dummy variable has a value of 1 or zero. If i is zero, revenue has increased and B1% of he coss increase, producing an 1% increase in revenue. If he dummy variable has a value of 1, revenue has decreased, and B1%,.B5% of coss decrease, producing a 1% decrease in revenue Revenue Revenue is an independen variable produced from he income saemen of companies on he Tehran sock exchange. 3.3.(d) The dummy variable for sales has a value of 1 if he sales revenue decreases for wo periods, oherwise i is zero. This ime, revenue increases and B1% of coss increase, producing a 1% increase in revenue; as revenue decreases, B1%,.B5% of coss decrease, producing a 1% decrease in revenue Indusrial producion growh Indusrial producion is he oupu of facories, mines and companies, and indusrial producion growh represens appropriae economic growh for shareholders. I is an independen variable ha is muliplied by he dummy variable; is daa is obained from he Cenral Bank library Naional income Revenues of businesses and segmens of he economy ha produce goods and services in sociey is called he naional income. I is an independen variable ha is muliplied by he dummy variable; is daa is obained from he Cenral Bank library Capial marke reurn A capial marke is ha in which securiies are exchanged; capial marke reurn is income ha invesors gain. I is an independen variable ha is muliplied by he dummy variable; is daa is obained from he Cenral Bank library. 4. RESEARCH METHODOLOGY Saisics in his research include hose for all companies on he Tehran sock exchange from 2007 o They were seleced because of he ease of availabiliy of financial saemens for hese companies and heir being members of he sock exchange. The oal number of companies on he exchange is for more han30 indusrial groups for a oal of 440 companies. This research has used a sampling mehod defining a series of sandards of eliminaion o ulimaely choose 91 firms from he Tehran sock exchange. Those ha were seleced had he following qualiies: They are companies for which daa is available. Their fiscal year ends in he monh of March. They were acceped o he bourse before They are no invesmen brokers or banks. They do no operae under long-erm delay when dealing. 4.1 Analysis of daa The goal of his research is applied, he procedure is descripive, and he ime span is pos-even. This research used a muli-variable linear regression model o es he hypoheses and used a panel daa model using Spss and Eviews sofware. The F es was used o es he hypoheses and he accuracy of he daa. I defined he kind of es (fixed or accidenal effecs) based on he Hasman es wih aenion o he kind of model agains an average model. To produce beer resuls, he F exam was used and o invesigae he variables and heir correlaion, he Pearson correlaion coefficien was used. To invesigae he normal form of he dependen variable conribuion, he Jarque- 270

4 Bakhiary e al.,2015 Bera es was used. The heory of remnan variance similariy is described by Breusch Pagan and remnan independence is described by Durbin-Wason. 5. RESEARCH RESULTS 5.1. Resuls of descripive saisics Table 1 shows ha he average log of operaing coss for he seleced companies compared o he las year was ; is minimum was and maximum was The average log of sales revenue of he seleced companies compared o he las year was , wih a minimum of and a maximum of The saisics indicae ha he average indusrial producion growh was for 2007 o 2012, wih a minimum of and a maximum of 5 (descending). The saisics also indicae ha he average naional income was in 2007 o 2012, wih a minimum of and a maximum of and ha he average capial marke reurn was 0.160, wih a minimum of 0 and a maximum of 1. Table 1. Descripive saisics for research variables. Variables observaions Mean Sd.dev min max skewness kurosis Operaing coss Dummy Indusrial producion growh Naional income Capial marke reurn /0637 0/0569 0/7758-1/ /160 0/1454 0/1203 0/4174 4/ /4174-0/4951-0/ / / / /940-0/826 0/083-0/069-0/246-1/322 8/438 9/088 1/894 1/ 998 1/ 579 2/ Normal es of research dependen variable The leas squares mehod was used o esimae he model parameers. In his mehod, a normal disribuion was assumed for he dependen variable and i was esed using he Jarque-Bera model. The resuls show ha he operaing cos variable does no have a normal disribuion (N 0). The Johnson ransfer funcion was used o normalize he daa. Afer normalizaion, he resuls of Jarque-Bera show ha he operaing cos variable has a normal disribuion. Char 1. Resuls of normal exam of dependen variable Series: OC Sample Observaions 449 Mean Median Maximum Minimum Sd. Dev Skewness Kurosis Jarque-Bera Probabiliy

5 Char 2. Resuls of exam afer a normalizaion Series: N_OC Sample Observaions 449 Mean Median Maximum Minimum Sd. Dev Skewness Kurosis Jarque-Bera Probabiliy Tes of firs secondary research hypohesis The firs secondary hypohesis posulaes he impac of indusrial producion growh on OCS wih resuls as follows: H 0: indusrial producion growh has no impac on operaing cos sickiness. H 1: indusrial producion growh has an impac on operaing cos sickiness. The resuls of Model 1 are as follows: Jarque-Bera: remnans are no normal a he 95% confidence level (ignore because of cenral limi heorem). Breusch-Pagan: no similariy of variance and he problem is he lack of variance similariy. The grea leas squares (GLS) model was used o remove his problem. Durbin-Wason: he remnans are independen. Ramsey: he model is correc. Using he resuls of he es of chaw and he classic regression of saisic averages, Model 1 was esimaed using combined daa. Toal Operaion Cos = α + β1 + β 2d Toal Operaion Cos 1 revenue 1 revenue 1 + β d 3 revenue revenue Indusrial producion growh + ε 1 (2) The probabiliy of he -saisic for he variable coefficien sales revenue sales dummy variable indusrial producion growh is less han 0.05 (0.0246). There is a meaningful relaion a he 95% confidence level. The firs secondary hypohesis is acceped: indusrial producion growh affecs OCS. A posiive variable coefficien (0.1152) indicaes a direc relaion beween inflaion and OCS. Table 2.Tes resuls for firs secondary hypohesis. Dependen variables: operaing cos Observaion:448 firm-year Variable coefficien -saisic Fixed componen -0/2130 4/036 0/6437 2/372 sales revenue Dummy variable 1/8338 3/884 sales revenue Dummy variable 0/1152 2/254 indusrial producion growh P-Value 0/0001 0/0181 0/0001 0/0246 Deerminaion coefficien F ( P Value ) 0/ /449 ( 0/0000) 5.4. Tes of he second secondary hypohesis The second secondary hypohesis posulaes he impac of naional income on he operaing coss sickiness and he resuls are as follows: 272

6 Bakhiary e al.,2015 H 0: naional income has no impac on operaing cos sickiness. H 1: naional income has an impac on operaing cos sickiness. The resuls of Model 2 are as follows: Jarque-Bera: remnans are no normal a 95% confidence level (ignore because of cenral limi heorem) Breusch-Pagan: no similariy of variance and he problem is he lack of variance similariy. The grea leas squares (GLS) model was used o remove his problem. Durbin-Wason: he remnans are independen. Ramsey: he model is correc. Using he resuls of he es of chaw and he classic regression of saisic averages, Model 2was esimaed using combined daa. Toal Operaion Cos = α + β1 + β 2d Toal Operaion Cos 1 revenue 1 revenue 1 + β3d Naional income + ε revenue 1 (3) The probabiliy of he -saisic o he variable coefficien sales revenue sales dummy variable naional income is greaer han There is no meaningful relaion a he 95% confidence level beween his variable and OCS. The second secondary hypohesis is rejeced and naional income has no impac on OCS. Table 3. Tes resuls of second secondary hypohesis. Dependen variables: operaing cos Observaion:448 firm-year Variable coefficien Fixed componen -0/2265 0/5668 sales revenue Dummy variable 1/9176 sales revenue naional income Dummy variable 0/00001 Deerminaion coefficien 0/1632 F ( P Value ) 30/067 (0/0000) saisic -5/613 1/361 2/298 0/208 P-Value 0/0000 0/1740 0/0220 0/ Tes of hird secondary hypohesis The hird secondary hypohesis posulaes he impac of capial marke reurn on OCS as follows: H 0: capial marke reurn has no impac on operaing cos sickiness. H 1: capial marke reurn has an impac on operaing cos sickiness. The resuls of Model 2 are as follows: Jarque-Bera: remnans are no normal a 95% confidence level (ignore because of cenral limi heorem) Breusch-Pagan: no similariy of variance and he problem is he lack of variance similariy. The grea leas squares (GLS) model was used o remove his problem. Durbin-Wason: he remnans are independen. Ramsey: he model is correc. Using he resuls of he es of Chaw and he classic regression of saisic averages, Model 3was esimaed using combined daa. Toal Operaion Cos i revenue i revenue,, = α + β1 + β2d Toal Operaion Cos 1 revenue 1 revenue 1 revenue + β3d Capial marke reurn + ε revenue 1 (4) The probabiliy he -saisic for he variable coefficien sales revenue sales dummy variable capial marke reurn is less han 0.05 (0.0111). There is a meaningful relaion a he 95% confidence level. The hird secondary 273

7 hypohesis is acceped; capial marke reurn affecs OCS. A posiive variable coefficien (0.0124) indicaes ha here is a direc relaion beween capial marke reurn and OCS. Table 4. Tes resuls of he hird secondary hypohesis. Dependen variables: operaing cos Observaion:448 firm-year variable coefficien Fixed componen -0/2214 0/6029 sales revenue Dummy variable 1/8837 sales revenue capial marke reurn Dummy variable 0/0124 Deerminaion coefficien 0/1733 F ( P Value ) 32/238 (0/000) -saisic -5/565 1/500 3/647 2/551 P-Value 0/0000 0/1343 0/0003 0/ Tes of main hypohesis This hypohesis and is saisical hypohesis is as follows: H 0: macroeconomic facors have no impac on operaing cos sickiness. H 1: macroeconomic facors have an impac on operaing cos sickiness. The resuls of he saisical assumpion of he oal model are as follows: Jarque-Bera: remnans are no normal a 95% confidence level (ignore because of cenral limi heorem) Breusch-Pagan: no similariy of variance and he problem is he lack of variance similariy. The grea leas squares (GLS) model was used o remove his problem. Durbin-Wason: he remnans are independen. Ramsey: he model is correc. Using he resuls of he es of chaw and he classic regression model, his case was esimaed using combined daa. Toal Operaion Cos i revenue i revenue,, = α + β1 + β2d Toal Operaion Cos 1 revenue 1 revenue 1 + β + β 3 4 d d revenue revenue revenue revenue 1 1 Indusrial producion growh Capial marke reurn + ε (5) Table 5. Tes resuls of main hypohesis. Dependen variables: operaing cos Observaion:448 firm-year Variable Coefficien Fixed componen -0/2138 0/7994 sales revenue Dummy variable 1/9745 indusrial producion growh sales revenue Dummy variable 0/1024 Saisic -4/481 2/834 2/803 2/621 P-Value 0/0000 0/0048 0/0053 0/0091 capial marke reurn sales revenue Dummy variable 0/0092 3/073 0/0023 AR(1) Deerminaion coefficien F ( P Value ) -0/2461 0/ /546 (0/000) -11/258 0/0000 The probabiliy of he -saisic for he variable coefficien sales revenue sales dummy variable indusrial producion growh is less han 0.05(0.0091). There is a meaningful relaion a he 95% confidence level beween 274

8 Bakhiary e al.,2015 indusrial producion growh and OCS. A posiive coefficien of his variable (0.1024) indicaes ha here is a direc relaion beween indusrial producion growh and OCS. Based on he oal model, an increase of 1 in indusrial producion growh will increase OCS o The probabiliy of he -saisic for he variable coefficien sales revenue sales dummy variable capial marke reurn is less han 0.05(0.0023); here is a meaningful relaion a he 95% confidence level beween capial marke reurn and OCS. A posiive coefficien for his variable (0.0092) indicaes a direc relaion exiss beween capial marke reurn and OCS. Based on an increase 1 of he main model for capial marke reurn, increases OCS This indicaes ha he main research hypohesis has been acceped. 6. Conclusion This research has examined he relaionship beween macroeconomic facors and found ha indusrial producion growh has a direc effec on OCS. An increase in indusrial producion growh increases OCS. The resuls show ha capial marke reurn has a direc relaion o OCS of acive companies in he Iranian marke. An increase in he capial marke reurn increased OCS. The resuls also show ha here is no meaningful relaion beween naional income and OCS. Table 6. Resuls variable Indusrial producion growh Naional income Capial marke reurn Sig.level 0/0246 0/8348 0/0111 Quaniy of () 2/254 0/208 2/551 saisic coefficien 0/1152 0/ /0124 resuls confirmed rejeced confirmed The resuls of his sudy are similar o hose of Calleja e al. (2005) and supplemen he findings of Namazi and Dawanipour (2009). Calleja e al. analyzed operaing cos sickiness in he US, Briain, France, and Germany and found ha operaing cos sickiness exiss in all of hem, wih a greaer incidence in France and Germany. Since he resuls show ha boh indusrial producion growh and capial marke reurn affec OCS, i is suggesed ha managers, when planning and budgeing heir operaing coss, facor in cos sickiness and he impac of indusrial producion growh and capial marke reurn. Also, in recogniion of he resuls showing he effec of macroeconomic facors (indusrial producion growh and capial marke reurn) on OCS in acive companies in he Iranian marke and because of recen changes in economic policy, i is suggesed ha policy-makers pay more aenion o mainaining he sabiliy of he counry s economy. Companies should add OCS o heir saemens, so ha invesors can easily analyze hem. Is suggesed ha cos sickiness be inroduced o academics and he capial marke, so ha accounans and invesors undersand his imporan facor. REFERENCES 1. Alivar A (2006) cos accouning. Concep and applicaions in cosing, 6h edn. and cenral researches of accouning and audiing of audi organizaion 2. Azar A, Momeni M (2009) Saisic and is applicaion in managemen, vol 1. 4 h edn 3. Cooper R, R S Kaplan (1998) The Design of Cos Managemen Sysems: Tex Cases and Readings, 2nd edn. Prenice Hall, Upper Saddle River, N.J 4. Cooper R, R S Kaplan (1992) Aciviy based cos sysems: Measuring he cos of resource usage. Accouning Horizons 6: Cosa P, Medeiros O (2001) Cos sickiness in Brazilian firms. ( 6. G Whie, A Sondh D Fried (1997) The analysis and use of financial saemen, second ediion (ex and soluion manual) 7. Hafeznia M, Sarmad GH ( 2002) inroducion o research mehod in human sciences 8. Khaki GH Research mehod in managemen 9. Kenneh Calleja, Micheal Seliaros, Dylan C Thomas (2005) Furher Evidence on he sicky Behavior of coss, London ECY 8TZ 10. Minz S L (1994) Spoligh on SG&A. CFO 10(December):

9 11. Mark C Anderson, Rajiv D Banker, surya N Jankirman (2003) Are selling General adminisraive Coss Sicky? Journal of accouning Research, vol 41. NO 1 prined in USA 12. Namazi M, Davanipour I (2009) Empirical review of cos sickiness behavior in Tehran sock exchange, vol 17. NO Noreen E, N Sodersrom (1994) Are overhead coss sricly proporional o aciviy? Evidence from hospial deparmens. Journal of Accouning and Economics 17 (1-2), Noreen E, N Sodersrom (1997) The accuracy of proporional cos models: Evidence from Hospial Service Deparmens. Review of Accouning Sudies. 2: Poorzamani Z, Bakhiary M R (2012) Reviewing he impac of macro economic facors on operaing cos sickiness in Tehran sock exchange 16. suberamaniam C, weidenmier M (2003) Addiional evidence on he sicky behavior of coss, working paper, Texas Chrisian Universiy 17. Shafeyi M, Mohammadzadeh H (2009) Invesigaing behavior of he coss sickiness in Iranian companies (firm) agains he companies of U.S, Briain, France and Germany 18. Shannon W Anderson, Clara Xiaoling Chen, S Mark Young (2005) Sicky Coss as Compeiive Response: Evidence on Sraegic Cos Managemen a Souhwes Airlines, Universiy of Souhern California, Levenhal School of Accouning, 276