Obtaining the effects of unobservable firm-specific characteristics on cost stickiness by the one-way error component regression model

Abstract

Purpose This research attempts to obtain the effect of unobservable firm-specific characteristics on selling, general and administrative (SG&A) cost stickiness by using panel data. Design/methodology/approach For this purpose, first, the authors describe the one-way error component regression model in panel data and presented that unobservable individual effect how could be estimated. Then the authors tested this panel data’s ability by estimating the effect of unobservable firm-specific characteristics on SG&A stickiness. Findings The authors find, for 195 firm-year of the industrial sector over 5 years, the SG&A costs increase on average at a rate of 0.76% per 1% increase in sales but decrease only 0.51% per 1% decrease in sales. In addition, the authors find that the unobservable characteristics of each company have different effects on SG&A cost stickiness. Originality/value As the present study is the pioneer study on describe the one-way error component regression model in panel data and presented the unobservable individual effects. The findings of this study can contribute to the realm of this study and the related literature.