Linguistically Induced Time Perception and Asymmetric Cost Behavior
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Linguistically Induced Time Perception and Asymmetric Cost Behavior Wei Huang1 · Jaehyeon Kim2 Received: 18 March 2020 / Revised: 12 October 2020 / Accepted: 21 October 2020 © Springer-Verlag GmbH Germany, part of Springer Nature 2020
Abstract Cost asymmetry indicates that costs decrease to a lesser extent when sales decline than costs increase when sales rise by the same magnitude. This asymmetric sen‑ sitivity of costs to activity changes is denoted as “cost stickiness” (Anderson et al. in J Account Res 41:47–63, 2003). Prior studies on cost analysis identify resource adjustment costs and managerial discretion as fundamental drivers of asymmetric cost behavior. This study examines whether linguistically induced time perception arising from future time reference in languages relates to the asymmetric sensitivity of costs to activity changes. We find that asymmetric cost behavior is more pro‑ nounced for firms located in countries whose languages do not require future events to be grammatically marked. Our evidence suggests that time encoding in languages influences speakers’ cognition, their resource adjustment decisions, and the cost behavior of firms they manage. Keywords Languages · Time reference · Cost behavior · Cost stickiness · Informal institutions JEL Classification D24 · L23 · M40 · M46 · Z10
Wei Huang and Jaehyeon Kim contributed equally. * Jaehyeon Kim [email protected] 1
Shidler College of Business, University of Hawaii at Manoa, Honolulu, HI, USA
2
School of Business, Ajou University, Suwon‑si, Gyeonggi‑do, Korea
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W. Huang, J. Kim
1 Introduction Prior studies in cost behavior show that costs decrease to a lesser extent in response to sales decreases than they increase in response to an equivalent level of sales increases. This asymmetric cost behavior (i.e., cost stickiness) occurs because managers make deliberate decisions to commit resources, and changes in resource commitments incur resource adjustment costs. When sales decrease, managers may choose to retain some unused resources rather than incur resource adjustment costs, such as severance payments to dismissed employees and dis‑ posal costs for capital equipment. When sales increase, managers have less room for discretion and must add needed resources (Anderson et al. 2003). A conceptual innovation that opens up the “black box” of cost behavior is to view managerial discretion as the fundamental driver of the costs. Such a deci‑ sion-based approach allows researchers to examine how managers’ beliefs and psychological biases affect cost behavior. A number of studies examine behav‑ ioral factors that determine the degree of asymmetric cost behavior, including managers’ optimism or pessimism (Anderson et al. 2003), managerial overconfi‑ dence (Chen et al. 2018), and management expectations measured by the tone of forward-looking statements (Chen et al. 2019). In this paper, we examine whether linguistically induced time perception relates to the degree of asymmetric cost behavior. Specifically, we examine wh
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