Purpose - Cost reacts in an asymmetric way to increase and decrease in the volume of the cost driver.  This study aims to investigate how investment intensity affects this asymmetric cost behavior. It examines the effect of capital expenditure and PPE investment on the asymmetric cost behavior of operating cost and SG&A cost. In addition, this study extends prior literature by examining the lagged effect of investment intensity on the asymmetric cost behavior of operating cost and SG&A cost.
Design/Methodology/Approach – This study uses Anderson et al. (2003) baseline model to measure asymmetric cost behavior of operating cost and SG&A cost and the effect of investment intensity on the asymmetric cost behavior. In addition, the model is developed by including the lagged investment intensity to capture its effect on the asymmetric cost behavior of operating cost and SG&A cost.
Findings - The empirical results demonstrate that: i) the degree of asymmetric cost behavior of operating cost and SG&A cost is increased by investment intensity. ii) the lagged investment intensity decreases the asymmetric cost behavior of operating cost and SG&A cost. iii) the asymmetric cost behavior decreases over time.
Research limitations/implications - The study is based solely on one year lagged effect and does not control for firm`s life cycle (i.e., firm's age). Future research will be useful to conduct comparative studies of cost behavior at different stages of firm`s life cycle.
Practical implications –One of the significant implications of this study is to advance the understanding of how investment intensity affects asymmetric cost behavior and how this would be reflected in the cost modeling and managerial decisions.
Originality/Value - There are several important areas where this study makes an original contribution to management accounting literature. This study extends the scope of the literature on asymmetric cost behavior by providing evidence that capital expenditure and PPE investment are main determinants of asymmetric cost behavior. In addition, this effect of investment intensity on asymmetric cost behavior is transitory and reduces overtime.