Keywords

1 Introduction

Alternative behavior model is an important issue based on deliberate managerial decisions for cost accounting [1]. Underlying the traditional behavior model is based on the activity level that associates changes linearly and proportionately [30]. Many studies have documented an asymmetry behavior between costs and resources in various perspectives [15, 22,23,24,25, 36]. The variances between the level of costs to activity rise changes and the level of costs to activity fall changes called “asymmetry” as sticky, anti-stick costs [7]. Conversely, The asymmetric cost behavior is investigating the consequence cost stickiness on actual and forecast earnings [28].

Managers tend to save capacity when capacity is strained and demand falls then, add capacity when demand grows [7, 13, 16]. As optimistic expectations lead to saving idle capacity in the sales response to necessary declines but these predictions will make a sticky cost behavior [17]. The asymmetric slack maintenance does not automatically lead to cost stickiness, but if managers retained in response to a previous sales decrease, the significant is stickiness on a prior sales increase and anti-stickiness on a prior sales decrease [11]. These motivations lead us to question is “how capacity utilization moderate the relationship between labor costs and capacity changes?" Capacity utilization is a measurement of the percentage of firm productivity capacity that determine unused resources to total resources [31].

Unemployment fluctuations may make stickiness labor costs in structural parameters because the statistics of unemployment are replicated as well in sticky labor behavior [14]. Empirical implications created a counter cyclical wedge between the real labor and marginal rate [19]. Moreover, the significance of labor is not flexible or inflexible because it is necessary to manage cost structure [6]. Moderating model has certain guiding significance for the application of big data to management decision [37].

Prior studies identified that capacity changes asymmetrically impact on manufacturing labor, selling and administrative, and total costs [5, 13]. However, Banker et al. [9] examined the moderating effect of prior periods on the relationship between sales changes and costs behavior. Yet, no research available in literature presents the impact of capacity utilization on asymmetric labor costs behavior.

This paper aims to analyze the impact of capacity utilization on the asymmetry behavior between labor costs and employment capacity, and to explain scientifically the differences without and within the interaction effects.

2 Related Studies and Hypothesis Development

Resources adjustment costs create asymmetry behavior in marginal costs because managerial expectations depend on optimism and pessimism about sales future [21]. Sometimes, uncompleted cost information generates asymmetric results [34]. It depends on how managers use resources and understand their mechanism [33]. Managerial optimism weakness on previous changes called cost sticky, and managerial pessimism weakness on previous changes called anti-sticky [2]. Asymmetry behavior is managerial practical because managers are expected reluctant to lower committed resources in periods of cost-effective growth [8, 12]. Limitation of labor costs associated with operating’s during sales changes [38]. In addition, high product competition has affected costs behavior that generates Stickiness costs or likely cost responsive [17]. This behavior of labor cost will generate a good control in future because the cost should match with managerial expectations that mean little variations [11]. Overall, The main reason of asymmetry behavior is cost response cannot be a rise or decline fast enough to combine changes in resources [4, 30]. Few studies have considered the effect of asymmetric information on reporting decisions and analyze after demand realization under a decentralized setting [27].

The capacity problems and asymmetry behavior positively are associated with control on economics variables such as employees’ intensity, production unit, workforce level [15, 26, 35, 39], and machine level. There are behavioral differences between costs categories [24]. Dalla Via and Perego [18] indicated significant labor cost stickiness conditional on a prior sales changes for Italian companies listed. Chen et al. [15] studied the interaction effects among capacity, economics variables, sales changes, and selling and administrative costs. Their results indicate asymmetry behavior and find significant. Azeez et al. [5] examined the relationship of labor costs and employment capacity in which they activate, and discuss how they share to the growth and improvement rate of categories of labor cost with capacity. Banker et al. [11] used employment protection legislation to examine adjustment costs and employment resources in different countries. Their finding showed that costs respond to sales increase greater than sales decrease.

We summarize these predictions by three hypotheses as follows:

  • Hypothesis 1a (H1a): Conditional on a prior capacity utilization increases, change in manufacturing labor costs to capacity increase is greater than capacity decrease.

  • Hypothesis 1b (H1b): Moderating effects on a prior capacity utilization increases, change in manufacturing labor costs to capacity increase is less than capacity decrease.

  • Hypothesis 2a (H2a): Conditional on a prior capacity utilization increases, change in selling and administrative labor costs to capacity increase is greater than capacity decrease.

  • Hypothesis 2b (H2b): Moderating effects on a prior capacity utilization increases, change in selling and administrative labor costs to capacity increase is less than capacity decrease.

  • Hypothesis 3a (H3a): Conditional on a prior capacity utilization increases, change in total labor costs to capacity increase is greater than capacity decrease.

  • Hypothesis 3b (H3b): Moderating effects on a prior capacity utilization increases, change in total labor costs to capacity increase is less than capacity decrease.

3 Research Methodology

3.1 Sample Description

We have empirically investigated 600 practical observation from five factories across hundred twenty months each one from 2006 to 2015 of cement in national Iraqi company. We calculated all log-change using same months in years as indexes of study variables using OLS estimation for regression and the second stage we applied hierarchal moderation regression as function of results.

3.2 Model Development

Our research design is based on the established asymmetric labor costs model of Anderson et al. [1], and Azeez et al. [5], Banker et al. [9] as in equations:

$$\begin{aligned} \begin{array}{ll} \ln \left( \frac{MLC_{i,t}-MLC_{i,t-1}}{MLC_{i,t}}\right) =&{}\varphi _0+\varphi _1 \ln \left( \frac{\mathrm {MEq}_{i,t}-\mathrm {MEq}_{i,t-1}}{\mathrm {MEq}_{i,t}}\right) \\ &{}+\varphi _2 \mathrm {DEC}_{i,t} \ln \left( \frac{\mathrm {MEq}_{i,t}-\mathrm {MEq}_{i,t-1}}{\text {MEq}_{i,t}}\right) \\ &{}+\varphi _3 \ln \left( \frac{qu_{i,t}-qu_{i,t-1}}{qu_{i,t}}\right) \\ &{}+\varphi _4 \text {DEC}_{i,t} \ln \left( \frac{\text {MEq}_{i,t}-\text {MEq}_{i,t-1}}{\text {MEq}_{i,t}}\right) \\ &{}\times \ln \left( \frac{qu_{i,t}-qu_{i,t-1}}{qu_{i,t}}\right) +\varepsilon _{i,t}, \end{array} \end{aligned}$$
(1)

where \(\text {MLC}_{i, t}\) is a manufacturing labor cost for firm i at time t and is a nonlinear function of independent variables (\(\varphi _1,\varphi _ 2, \varphi _3\), and \(\varphi _4\)). ME is a manufacturing Capacity of employees by hours. \(\text {DEC}_{i,t}\) is an indicator set to 1 if \(\text {MEq}_{i,t}<\text {MEq}_{i,t-1}\), and set to 0 otherwise. \(\varphi _0\) is a parameter that estimates the asymmetric labor cost unassociated with employment capacity changes. \(\varphi _1\) is a parameter that estimates the association between manufacturing labor cost and employment capacity changes increase. \(\varphi _2\) is a Parameter of asymmetry measurement that estimates the association between manufacturing labor cost and employment capacity changes during increasing and decreasing. \(\varphi _3\) is a moderating variable that estimates the association between labor cost and capacity utilization changes. \(\varphi _4\) is a critical value that estimates how capacity utilization moderates the association between manufacturing employment capacity and labor costs behavior. \(\varepsilon _{i,t}\) is an error term for variability in labor cost change estimation for firm i at time t.

The capacity utilization was computed for labor hour’s measures of the unused and total capacity for each of the periods as in Eq. (2) below:

$$\begin{aligned} qu = 1- \frac{\text {unused capacity}}{\text {total capacity}}, \end{aligned}$$
(2)

where qu is employees Capacity Utilization for each activities. Unused capacity is that hours cannot exceed effective capacity. Total capacity is the maximum hours of output designed for the operation and facility other.

$$ \begin{aligned} \begin{array}{ll} \ln \left( \frac{\mathrm {S \& ALC} _{i,t}-\mathrm {S \& ALC}_{i,t-1}}{\mathrm {S \& ALC} _{i,t}}\right) =&{}\theta _0+\theta _1 \ln \left( \frac{\mathrm {SEq}_{i,t}-\mathrm {SEq}_{i,t-1}}{\mathrm {SEq}_{i,t}}\right) \\ &{}+\theta _2 \mathrm {DEC} _{i,t} \ln \left( \frac{\mathrm {SEq}_{i,t}-\mathrm {SEq}_{i,t-1}}{\mathrm {SEq}_{i,t}}\right) \\ &{}+\theta _3 \ln \left( \frac{qu_{i,t}-qu_{i,t-1}}{qu_{i,t}} \right) \\ &{}+\theta _4 \mathrm {DEC} _{i,t} \ln \left( \frac{\mathrm {SEq}_{i,t}-\mathrm {SEq}_{i,t-1}}{\mathrm {SEq}_{i,t}}\right) \\ &{}\times \ln \left( \frac{qu_{i,t}-qu_{i,t-1}}{qu_{i,t}}\right) +\omega _{i,t}, \end{array} \end{aligned}$$
(3)

where: \( \mathrm {S \& ALC}_i\), is a selling and administrative labor cost for firm i at time t. \(SE{q_{i,t}}\) is a selling and administrative Capacity of employees by hours, and all other variables were defined previously.

$$\begin{aligned} \begin{array}{ll} \ln \left( \frac{\mathrm {TLC}_{i,t}-\mathrm {TLC}_{i,t-1}}{\mathrm {TLC}_{i,t}}\right) =&{}\gamma _0+\gamma _1 \ln \left( \frac{\mathrm {TEq}_{i,t}-\mathrm {TEq}_{i,t-1}}{\mathrm {TEq}_{i,t}}\right) \\ &{}+\gamma _2 \mathrm {DEC} _{i,t} \ln \left( \frac{\mathrm {TEq}_{i,t}-\mathrm {TEq}_{i,t-1}}{\mathrm {TEq}_{i,t}}\right) \\ &{}+\gamma _3 \ln \left( \frac{qu_{i,t}-qu_{i,t-1}}{qu_{i,t}}\right) \\ &{}+\gamma _4 \mathrm {DEC} _{i,t} \ln \left( \frac{\mathrm {TEq}_{i,t}-\mathrm {TEq}_{i,t-1}}{\mathrm {TEq}_{i,t}}\right) \\ &{}\times \ln \left( \frac{qu_{i,t}-qu_{i,t-1}}{qu_{i,t}}\right) +\alpha _{i,t}, \end{array} \end{aligned}$$
(4)

where \(\mathrm {TLC}_i\), is a total labor cost for firm i at time t. \(\mathrm {MEq}_{i,t}\) is a total Capacity of employees by hours include all of the activities, and remainder of variables are defined previously.

Table 1. Definition of variables in empirical models
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To develop the concept of asymmetry labor costs about employment capacity structure (high utilization). The coefficients \({\phi _1}\), and measure the average percentage increase in labor costs for one present increase in employment capacity, whereas the sum of coefficients (\({\phi _1}+{\phi _2}\)), (\({\theta _1}+{\theta _2}\)) and (\({\gamma _1}+{\gamma _2}\)) in three models to measure the average percentage of decrease in labor costs for one present decrease in the employment capacity. The labor costs behavior is asymmetry when the average percentage increase in labor costs not equal the average percentage decrease in labor costs, that is, if labor costs decrease less when employment capacity fall than they increase when employment capacity rise [1, 36]. Means the labor costs have sticky behavior (\({\phi _1, \theta _1}\) and \(\gamma _1\), and will be positive, \(\phi _2, \theta _2\) and \(\gamma _2\), will be negative). The empirical hypothesis for sticky behavior means that \({\phi _2}<0\). This finding an empirical test of Hypotheses 1a, 2a, and 3a. In addition, the current study is exciting literature using the interactive effect of capacity utilization on the asymmetric relationship between employment capacity and labor costs behavior. Hypotheses 1b, 2b, and 3b imply \({\phi _2}\), are negative and \({\phi _4}\), are positive reflecting stickiness and anti-stickiness respectively [9]. The moderation role of capacity utilization implies that labor costs asymmetry will be less than in the case without the interactive effects. The variables definitions are defined in Table 1.

4 Findings and Discussion

In the current study, we estimate three models for each hypothesis of manufacturing labor costs, selling and administrative labor costs, and total labor costs (Tables 2, 3 and 4). For all of those categories, the estimates indicate significance levels and support our hypotheses. The evidence finds labor costs behavior is sticky on a prior capacity decrease and indicate significant anti-sticky behavior on a prior capacity decrease with interactive effects of capacity utilization (\({<}0\) and \({>}0\) continues to all models).

4.1 Asymmetric Labor Costs Response to Capacity Changes

In the regression analysis, we find a sticky behavior between labor costs and capacity changes for all of the labor costs categories but in different degrees, the estimates indicate that \({\varphi _1}\) is positive, \({\varphi _2}\) is negative and significant (see model (1) to each Tables 1, 2 and 3). The results found manufacturing, selling and administrative labor, total labor costs are sticky on average by magnitudes of prior employment capacity increase and decrease.

Table 2. Validation test of the sticky behavior: Nonlinear analysis of moderation test among employment capacity, capacity utilization, and manufacturing labor costs change
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Table 3. Validation test of the sticky behavior: Nonlinear analysis of moderation test among employment capacity, capacity utilization, and selling and administrative labor costs change
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Table 2-panel A. presents a model (1), manufacturing labor costs response to capacity increase is statistically greater than capacity decrease (\(\varphi 1 \succ {\varphi _1}\mathrm{{ + }}{\varphi _2}\)). The coefficient is negative (\(-0.56\%\), \(SE. =0.18\)) and significantly different from zero at the 1 % (t-statistics \(-3.176\)). On average, the manufacturing labor costs increase 0.74% per 1% increase in employment capacity (\({\varphi _1}\)) and costs decrease by 0.18% per 1% decrease in employment capacity (\({\varphi _1}+{\varphi _2}\)). The results show that the adjusted \(R^2\) is 0.71, the model is significant (p < 0.001) level. Means the behavior between employment capacity change and manufacturing labor cost is sticky (H1a). However, Selling and administrative labor costs response to capacity increase statistically is greater than capacity decrease (\({\theta _1}>\) + 2). The coefficient is negative and significant (\(-0.40\%\), \(SE. =0.12\), t-statistics \(-3.25\)). On average, the Selling and administrative labor costs increase 0.71% per 1% increase in employment capacity (\({\theta _1}\)) and costs decrease by 0.31% per 1% decrease in employment capacity (\({\theta _1}+{\theta _2}\)), for which Selling and administrative labor costs expected to be sticky (H2a). The adjusted R2 is 0.70, where F-value is 475.99, the model is significant (p < 0.001) level. (Presented in Table 3-panel A.).

Finally, Table 4-panel A. in model (1), presented the empirical examination of the relationship between total labor costs and employment capacity changes. Total labor costs asymmetrically respond to capacity changes. The coefficient is negative and significant (\(-0.58\%\), \(SE. =0.08\), t-statistics \(-7.68\)). On average, the total labor costs increase by 0.67% per 1% increase in employment capacity (\({\gamma _1}\)) and they decrease by 0.09% per 1% decrease in capacity (\({\gamma _1}+{\gamma _2}\)). The results show that the adjusted \(R^2\) is 0.09, where F-value is 21.09, the model is significant (p < 0.001) level. The result is consistent with (H3a).

4.2 Moderation Analysis: Interactive Effects of Capacity Utilization

In extension analysis, we estimate interactive models for each of the main components of labor costs (manufacturing labor, selling and administrative labor, and total labor), for extending literature of asymmetric cost behavior. The estimates indicate significant stickiness conditional on a prior capacity decrease and significant anti-stickiness conditional on a prior capacity decrease with moderating effects of capacity utilization change (\(\varphi _2<0\) and \(\varphi _4>0\) respectively) suggesting that capacity utilization changes are related to the effects of employment capacity changes on labor costs behavior. These findings support H1b, H2b, and H3b.

Table 4. Validation test of the sticky behavior: Nonlinear analysis of moderation test among employment capacity, capacity utilization, and total labor costs change
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Moderation test was conducted to examine the interacting effect of prior sales changes between sales changes and asymmetric cost behavior [9]. The labor costs exhibit significant stickiness without the interactive effects of capacity utilization (\(\varphi _2 =-0.22\%\), \(SE. =0.34\), t-statistics \(-0.65\)), (\(\theta _ 2= -0.19\%\), \(SE. =0.05\), t-statistics \(-3.67\)), and (\(\gamma _2= -0.48\%\), \(SE. =0.06\), t-statistics \(-7.51\)) respectively, but the labor costs reveal the opposite pattern of significant anti-stickiness within the interactive effects of capacity utilization (\(\varphi _4=0.11\%\), \(SE. =0.02\), t-statistics 6.05), (\(\theta _ 4=0.28\%\), \(SE. =0.04\), t-statistics 6.81), and (\(\gamma _4= -0.13\%\), \(SE. =0.06\), t-statistics 2.16). These results document that labor costs are description of a broader pattern of asymmetric cost behavior, which extends to all the major components of labor costs for physical input quantity (employment capacity) for labor costs behavior.

In additional, Banker et al. [9] indicated that costs respond to activity increase is greater than activity increase within the moderation effects, which estimated parameter of total employees costs increase equal 0.62 stronger than 0.42 within the interactive effects. Whereas our finding indicate that coefficients of asymmetry measure less than within the interactive effects (\(\varphi _2=0.56, \theta _2 = -0.40, \gamma _2 =-0.58) > ( \varphi _2= -0.22, \theta _2 = -0.19, \gamma _2= -0.48\)) respectively and capacity utilization change was observed to strengthen the relationship between capacity changes and labor costs behavior (\(\varDelta R^2 =0.017\), \(\varDelta R^2=0.021\), \(\varDelta R^2=0.009\), \(p<0.001\)). The results also underscore the value-added of interactive analysis of capacity utilization, which in the moderation models of categories of labor costs are important for drawing accurate implications about the natural of costs behavior. While Banker et al. [9] considered the moderation of two-period analysis is value- added for theory of asymmetric cost behavior.

4.3 Discussion

This research was conducted to analyze the moderation effects of capacity utilization changes as they related to asymmetric costs behavior at manufacturing sector firms in Iraq. Until recently, most studies have been conducted to investigate why change in labor costs behavior to activity is asymmetry [3, 8, 18, 20, 29], specially Banker et al. [9] conducted on moderating effects but they ignored the important dimension of capacity utilization and also focused on multiple periods analysis for same variables to overcome these issues, this research has presented an interactive model based on data collection from multiple and different variables. Maintenance management is necessary an effective system to display the surface temperature to reduce the capacity losses [32].

From the variable is used in the theoretical research model, three nonlinear relationships were proposed and tested. The results found capacity utilization changes can affect asymmetric cost behavior. Conversely, labor costs and their categories have associated with employment capacity changes in different degrees such as significant stickiness conditional on a prior capacity decrease and significant anti-stickiness conditional on an interaction of capacity decreases with capacity utilization increases. Finally, capacity utilization can decrease the degree of sticky measure. The results from the nonlinear relationships tested to confirm and align with the existing literature [1, 3, 5, 9].

Anderson et al. [1] Documented that behavior between costs and resources changes is asymmetry because costs respond to resources increase greater/less than resources decrease that rejected the traditional models about fixed and variable changes. However, costs behavior is sticky when prior sales increase, whereas costs behavior is anti-sticky when prior sales change decrease. The costs are anti-sticky when capacity utilization is unusually low [9]. On the other hand, Azeez et al. [5] examined the labor costs behavior when employment capacity change is increasing and decreasing for existing asymmetric cost behavior by using physical output data. Finally, the results found capacity utilization is able to moderate the relationship between capacity change and labor costs behavior, and suggest new avenues of exploration for future studies.

5 Conclusion

Significance of the relationship between costs behavior and resources changes has been an extension of the asymmetric cost behavior. Asymmetry phenomenon is a new thinking created by [1] but it still under discussion because they did not use many drivers, their findings used sales revenues change only and ignored a physical output data for two reasons: physical data is not available, and sales revenues typically is a more an appropriate empirical measure for activity than physical data [10]. The current study provides an empirical examining that added a new dimension for explaining how capacity utilization change moderates the relationship between capacity changes and labor costs behavior. In addition, our findings showed a complex fundamental design of asymmetric cost behavior that combines two roles: labor costs behavior is sticky on a prior capacity increase without the interaction of capacity utilization changes. Second, labor costs behavior is anti-sticky on a prior capacity increase within the interaction of capacity utilization changes, means the moderation effects of capacity utilization made the opposite of the standard predictions.

The findings of the current study have revealed that capacity utilization changes significantly have affected labor costs behavior. Furthermore, these predictions explain the influence of managerial expectations for future on firm resources such as the general structure of optimal decisions with resources adjustment costs, which generate asymmetry behavior. Finally, using capacity utilization changes with asymmetric relations can decrease the degree of sticky behavior between labor costs and capacity change, interaction capacity utilization changes with a prior capacity decrease can converse the asymmetry degree from sticky to anti-sticky. The results of moderation are unique and would provide productive avenues for future studies.