Asymmetric Cost Behaviour and Financial Slack: Evidence from Swedish Manufacturing Firms

Sammanfattning

This study examines how Swedish manufacturing firms adjust operating costs in response tochanges in revenue, using operating cost-to-revenue elasticities, and analyses how financialslack may influence these adjustments. Prior research on cost asymmetry has primarilyfocused on cost stickiness and its determinants, while paying limited attention to how internalfinancial conditions may shape firms' cost responses across different revenue states. Thestudy uses quarterly panel data from a sample of Swedish manufacturing firms between 2004and 2024 and applies a two-way fixed-effects regression model to analyse the elasticity ofoperating costs across three states: revenue growth, normal decline, and large decline. Thefindings indicate that Swedish manufacturing firms exhibit anti-sticky cost behaviour, ascosts decrease more during moderate revenue declines than they increase during revenuegrowth. The cost elasticities are, on average, higher during normal declines than during largedeclines, where uncertainty and progressively more consequential adjustment costs may limitfurther reductions. The findings also suggest that financial slack has a negative associationwith cost elasticities, indicating that firms with larger working capital buffers may adjust theiroperating costs less in response to changes in revenue. Decomposition of financial slack alsorevealed that this finding is driven primarily by cash holdings rather than non-cash currentassets. The study contributes to the literature by extending research on cost asymmetry acrossdifferent revenue states, incorporating perspectives on financial slack, and providing newevidence from the Swedish manufacturing context.