Journal article

Authors list: Kreilkamp, Niklas; Teichmann, Sophie; Wöhrmann, Arnt

Publication year: 2021

Pages: 913-938

Journal: European Accounting Review

Volume number: 30

Issue number: 5

ISSN: 0963-8180

eISSN: 1468-4497

DOI Link: https://doi.org/10.1080/09638180.2021.1976662

Publisher: Taylor and Francis Group

Abstract: 
We investigate how asymmetric cost behavior (also termed cost stickiness) affects peer-based valuation models. Using a sample of U.S. firms for the period 2000-2016, we provide evidence that the higher the degree of a target firm`s level of cost stickiness vis-a-vis its peer group, the greater is the peer-based underestimation of the firm's market value (downward peer-based valuation bias). Furthermore, we show that the underestimation of firm value is weaker for firms exhibiting potential for agency issues. Overall, our findings suggest the following: First, using information on cost management strategies reduces the downward peer-based valuation bias. Second, investors partially understand and incorporate available information about cost stickiness into their evaluation of firm value, c.p. leading to deviations from the value estimates of the peer-based models. These models generally do not recognize information on cost stickiness as an input factor. Ultimately, the findings support the assumption that investors assess the likelihood that cost stickiness is either driven by economic or non-economic reasons and adapt their value estimate accordingly.

Harvard Citation style: Kreilkamp, N., Teichmann, S. and Wöhrmann, A. (2021) The Effect of Cost Stickiness on Peer-Based Valuation Models, European Accounting Review, 30(5), pp. 913-938. https://doi.org/10.1080/09638180.2021.1976662

APA Citation style: Kreilkamp, N., Teichmann, S., & Wöhrmann, A. (2021). The Effect of Cost Stickiness on Peer-Based Valuation Models. European Accounting Review. 30(5), 913-938. https://doi.org/10.1080/09638180.2021.1976662