The Effects of Medium-Term Sales Targets on Asymmetric Cost Behavior

Abstract

This paper investigates the impact of sales targets released in medium-term strategic plans on cost behavior. Incorporating the sales targets announced in medium-term strategic plans as a proxy for managerial expectations for a change in medium- or long-term sales, we extend the empirical model developed by Anderson et al. (2003). The empirical findings of this paper indicate that regardless of the direction of an actual change in sales compared to the prior-year sales, the higher (lower) sales targets set in medium-term strategic plans have a stronger impact on cost behavior, suggesting that medium-term strategic plans substantially influence the managerial decision making on resources.