Implications of cost behavior for analysts’ earnings forecasts

Mustafa Ciftci, Raj Mashruwala, Dan Weiss

Research output: Contribution to journalArticlepeer-review


Recent work in management accounting offers several novel insights into firms’ cost behavior. This study explores whether financial analysts appropriately incorporate information on two types of cost behavior in predicting earnings—cost variability and cost stickiness. Since analysts’ utilization of information is not directly observable, we model the process of earnings prediction to generate empirically testable hypotheses. The results indicate that analysts “converge to the average” in recognizing both cost variability and cost stickiness, resulting in substantial and systematic earnings forecast errors. Particularly, we find a clear pattern—inappropriate incorporation of available information on cost behavior in earnings forecasts leads to larger errors in unfavorable scenarios than in favorable ones. Overall, enhancing analysts’ awareness of the expense side is likely to improve their earnings forecasts, mainly when sales turn to the worse.

Original languageEnglish
Pages (from-to)57-80
Number of pages24
JournalJournal of Management Accounting Research
Issue number1
StatePublished - 1 Mar 2016


  • Analysts’ earnings forecasts
  • Cost stickiness
  • Cost variability
  • Expense forecasts

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Accounting


Dive into the research topics of 'Implications of cost behavior for analysts’ earnings forecasts'. Together they form a unique fingerprint.

Cite this