Asymmetric cost behavior and earnings forecast precision: A cross-country study of Iraq and Jordan

Abstract

This study explores the impact of cost stickiness and its signaling effect on the accuracy of earnings per share (EPS) forecasts in the capital markets of developing countries, with a focus on Iraq and Jordan. Cost stickiness, defined as the asymmetric response of costs to revenue fluctuations, particularly their slower reduction during sales declines, challenges traditional forecasting models that assume cost symmetry. Drawing on panel data from 30 publicly listed firms between 2014 and 2023, the study tests six regression-based hypotheses. The results indicate that higher levels of total and operational cost stickiness significantly impair EPS forecast accuracy. In Iraq, operational and wage-related stickiness exert the strongest effects, while in Jordan, service and depreciation costs play a more prominent role. These findings are interpreted through agency theory, signaling, and information asymmetry, emphasizing how weaker institutional quality and disclosure, as in Iraq, intensify the adverse effects. The study contributes to the cost behavior literature and offers practical insights for analysts, regulators, and managers in emerging markets.