Residual Loss of Agency Cost in Organisational Asymmetric Cost Behaviour

Abstract

Effective cost management requires significant appreciation of cost behaviour because of its critical role in determination of the most profitable adjustment of activities of an enterprise in relation to its environment. Conventional cost behaviour theory assumes a symmetrical and proportional relationship between cost and activity volume, however, in the recent years empirical studies proved otherwise. The revelation is that cost behaves asymmetrically in short-term in relation to volume of activity. One of the factors that cause asymmetric cost behaviour is observed to be agency problem. Hence the objective of this paper is to present a review of extant literature on the conceptualisation of identifying residual loss of agency costs through asymmetric cost behaviour. The study is believed to be of great contribution toward drawing the attention of empirical research in agency costs and cost behaviour. It can also be of importance for in policy making concerning agency problem.