Selling, General, and Administrative Cost Stickiness and GDP Predictions

• In Event: Financial Reporting--Profit and Loss

Abstract

This study examines whether selling, general, and administrative (SG&A) cost stickiness is informative in predicting GDP growth and in explaining GDP forecast errors. Prior research has examined how accounting earnings growth is informative in predicting GDP. However, up to this point there is a lack of research examining how accounting cost behavior is informative in predicting GDP growth. Managers make SG&A cost decisions based on projections of future demand, so I expect to find that cost stickiness has an informational role in predicting GDP growth and in explaining GDP forecast errors. Results of this study show that cost stickiness is informative in predicting future GDP growth and is also informative in explaining GDP forecast error. This study has the potential to improve GDP growth forecasts. GDP growth forecasts are important because they play a crucial role in federal budgeting and in Federal Open Market Committee monetary policy decisions.

Author

• Russell Barber, Louisiana State University - Baton Rouge