Effect of demand uncertainty on cost structure of Turkish manufacturing firms [Article]

Abstract

Cost rigidity defines the characteristics of cost structure which is defined as the proportion of fixed costs to variable costs of firms. When the proportion of fixed costs are higher than the variable costs, then the cost structure is defined as a rigid cost structure. The structure of operating costs of Turkish manufacturing firms between years 1995 and 2014 is tested in terms of their “rigidity” in this paper. Moreover, the effect of demand uncertainty, as measured by the standard deviation of net sales, on the cost structure of operating costs is also tested. Findings support that higher levels of demand uncertainty are associated with higher portions of fixed costs in the cost structure (i.e., more rigid cost structure). That result contradicts the common wisdom that firms tend to lower the fixed costs in their cost structure as they are confronted with uncertainty.