Strategic positioning and asymmetric cost behavior

Purpose: This paper explores if the firm’s strategic orientation can be associated with differences in cost behavior activity. Design/methodology/approach: Using Compustat data from 1979 to 2012, the archival study examines if there are differences between differentiation and cost leadership strategies on the firm’s cost stickiness. Findings: The main finding provides evidence that firms pursuing a differentiation strategy exhibit greater cost stickiness, on average, as compared to firms pursuing a cost leadership strategy. This relationship is moderated by the optimistic or pessimistic expectations of managers for future sales. Originality/value: This paper contributes to the literature on cost management by explaining how strategic positioning affects firms’ cost behavior using the framework of asymmetric cost behavior. The study encompasses both product and period costs and documents the impact on earnings.