An Exploration of Cost Stickiness in New Zealand Small to Medium Sized Businesses

Abstract

The phenomenon of cost stickiness was first identified in the accounting literature by Anderson et al (2003). This branch of theory holds that changes in costs incurred by firms are not solely determined by the magnitude of the change in activity, but also the direction of the activity change. Previous research of cost stickiness has tended to utilise publicly available data, predisposing research to focus on large, listed firms, in large, open economies. This has left a gap in cost stickiness literature, as it relates to Small and Medium Sized Enterprises (SMEs), and small, open economies. The aim of this thesis is to assist in the development and extension of the literature to fill this void, through its examination of New Zealand SMEs, participating in the healthcare sector. The four main aims of this study are: (i) to extend research to SMEs; (ii) to extend research of the healthcare sector; (iii) to extend research of small, open economies, and (iv) to provide a comprehensive taxonomy of the cost stickiness literature. Employing a proprietary database, maintained by a member firm of an international accountancy network, five separate analyses employing pooled, time-series and cross-sectional designs are utilised to investigate the relationship between cost and activity. Results obtained are subject to sample selection bias, though regression estimates are largely consistent across each of the analyses run. Findings provide evidence of cost stickiness among New Zealand SMEs engaged in the healthcare sector, but minimal evidence of the effect of certain mitigating factors on the cost stickiness of those firms. In spite of the sample selection bias inherent in the findings, because of the composition of the various samples employed, it is submitted that cost stickiness prevails in New Zealand SMEs participating in the healthcare sector.