Organizational capital, intellectual capital and cost stickiness (evidence from Iran)
| Date | 10 July 2017 |
| DOI | https://doi.org/10.1108/JIC-06-2016-0066 |
| Published date | 10 July 2017 |
| Pages | 625-642 |
| Author | Ali Mohammadi,Parastoo Taherkhani |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & Finance,Accounting/accountancy,Behavioural accounting |
Organizational capital,
intellectual capital and cost
stickiness (evidence from Iran)
Ali Mohammadi and Parastoo Taherkhani
Islamic Azad University, Zanjan, Iran
Abstract
Purpose –The purpose of this paper is to identify the relationship between organizational capital and the
subsets of organizational capital (intellectual capital (IC)) cost and cost stickiness.
Design/methodology/approach –This study is causal correlational research. The data related to the
company’s financial statements were collected using the Rahavard Novin Software and www.rdis.ir. In this
study, panel data were run with the use of Eviews 8, in order to test the hypotheses. The ordinary least-
squares method is used in this study to estimate the parameters of the model.
Findings –The results obtained from the study show that there is a significant relationship between
organizational capitaland cost stickiness.However, there isno significant differencebetween highand low rank
in termsof organizationalcapital and cost stickiness. In addition,there is a significant differencebetween IC and
cost stickiness. Moreover, there is no significant difference between the components of IC and cost stickiness.
Also, IC has an effect on the intensity of the relationship betweenorganizational capitaland cost stickiness.
Originality/value –This study explores the relationship between organizational capital and the subsets of
IC and cost stickiness. Independent variables used in this study include organizational capital, IC and its
components in the Pulic model, i.e. the efficiency of capital employed, the efficiency of human capital and the
efficiency of structural capital.
Keywords Cost stickiness, Intellectual capital, Organizational capital
Paper type Research paper
Introduction
In the common traditional model of the behavior of costs, which is generally accepted in the
accounting literature, costs are usually divided into two categories –fixed and variable –in
terms of changes in the activity level: fixed occupants are variable. In this model, variable
costs change in proportion to the changes in activity drive (Noreen, 1991; Balakrishnan and
Gruca, 2008). That is to say that the rate of change in costs depends only on the rate of
change in the activity level but not on the direction of change (Anderson and Lanen, 2007).
In recent years, however, researchers such as Noreen and Soderstrom (1997) and Cooper and
Kaplan (1998) have found that the percentage increase in costs by increasing the activity
level is more than the reduction of costs as a result of reducing the same volume of activity.
This type of behavior of costs is called cost stickiness (see Anderson et al., 2003).
The rationale behind the emergence of cost stickiness can be justified by the cost alternative
model. In this model, it is assumed that managers adjust the resources measurably in response
to activitychange. The modeldistinguishesthe costs which changein proportionto the volume
of activity from the adjusted cost of resources by administrators. On one hand, there is
uncertainty about thefuture demand duringthe periods ofdeclining sales.On the other hand, if
managers reduce resources, reacquisition of resources would result in the acquisition of
adjusted costs. Hence, managers postpone the reduction of costs until they ensure the
sustainability of the recession of the demand (Medeiros and Costa, 2004).
After posing the cost stickiness discussion,manyresearchworkspayattentiontoexamine
the factors affecting this phenomenon, such as corporate governance and decision-making
practices of managers. Evenson and Westphal (1995) provide a succinct definition of
organization capital: “organization capital […] [is] the knowledge used to combine human skills
and physical capital into systems for producing and delivering want-satisfying products.”
Journal of Intellectual Capital
Vol. 18 No. 3, 2017
pp. 625-642
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-06-2016-0066
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
625
Organizational
capital, IC and
cost stickiness
Accordingly, organizational capital relates to firms’underlying systems and processes of
operating, investment and innovation capabilities that enable them to generate outputs. While all
enterprises require a certain organization capital to convert resources into outputs, we use the
term “organization capital”to refer to the ability of firms to deliver and sustain supernormal
performance. That is, organizational capital enables superior operating, investment and
innovation performance, represented by the agglomeration of technologies –business practices,
processes and designs.
Hence, it can be concluded that organizational capital includes investment in intangible
assets, which sometimes are not reported as financial resources on the balance sheet.
According to Edvinsson and Malone (1997), commercial units should pay more attention to
administrative, public and selling costs for the development of organizational capital.
According to Bontis (2001), structural capital is one of the main components of intellectual
capital (IC) that include communicative capital (customer) and organizational capital.
Therefore, in this research, we examine the relationship between IC and its other subsets
with cost stickiness.
Given the significance of studying the behavior of costs for future planning of
companies, in this study, we sought to answer the important question as to whether or not
there is a relationship between IC, organizational capital and cost stickiness. The results of
this study are very useful in understanding the behavior of costs and are an important step
for better analysis of costs. Also, addressing further details of the reasons for the outcome
and factors affecting cost stickiness help managers to better develop future plans and
budget of the company.
The theoretical foundations and research background
Some experts refer to the cost stickiness phenomenon as an alternative pattern for the
behavior of cost stickiness (Anderson et al., 2003). The cost stickiness behavior refers to
conscious decision making of managers for considering organization resources as
undesirable. The use of organizational resources as unfavorable has originated from the
reduction in the volume of activity. The cost stickiness behavior can be observed in various
categories such as administrative costs, public and sales costs, cost of goods sold and
operating costs (Chen et al. 2012; Kama and Weiss, 2013).
Theories of cost stickiness
In explaining the creation of a cost stickiness phenomenon the following reasons have been
expressed: the existence of adjustment cost, changes in economic activity amount,
expectations of future sales and studied decisions of management. Adjustment costs
including social costs and psychological and economic sacrifices have appeared during the
source adjustment process. For example, it can be cited to reduce work conscience and
ethics, existence of disruption in the continuity of work, human resource development costs
during increasing demand and payment of compensation during downsizing. Anderson
et al. (2003) have shown that there is a positive relationship between adjustment costs and
cost stickiness. High level of adjustment costs hinders decision making of managers for
reducing optional resources proportional to the reduction in the level of economic activity.
The second factor in creating cost stickiness is the rate of change in the level of economic
activity. Relatively large changes in sales impact the linear pattern of cost behavior. In this
regard, Krishnan (2004) found that managers do not consider changes occurred in the
employees’work hours due to small changes (3 percent or less) in the level of activity
important. However, they show a significant reaction to big changes. Subramaniam and
Weidenmier (2003) showed that changes in income that are more than 2 percent can be
stickiness behavior in administrative costs, general and selling costs and cost of goods sold.
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