The Predictive Power of Expenses for Future Sales: Disaggregation and Cost Stickiness

Abstract

This paper examines the information content and predictive ability of disaggregated expenses for forecasting future performance while considering how cost stickiness influences this relationship. Based on a sample of firms listed on the Amman Stock Exchange, the study examines the predictive power of cost of goods sold (COGS), selling and administrative expenses (SGA), and depreciation (DEP) for future sales over four-time horizons. The results show that all three expense items are significant predictors of future sales, with COGS showing the strongest predictive power in the near term but weakening in the longer term. On the other hand, SGA and DEP show increasing predictive power over longer periods, reflecting their roles as discretionary expenditures and capital investments. Furthermore, the analysis of cost stickiness shows that COGS and DEP exhibit sticky behavior, indicating operational rigidity, whereas SGA does not show any significant stickiness and adjusts proportionally to sales changes. The findings highlight the importance of disaggregating expenses to reveal their distinct information content and provide implications for financial analysis and forecasting.