Managerial Expectations about the Permanence of COVID-19: Evidence from Changes in Asymmetric Cost Behavior

This study examines firms' cost behavior during the COVID period, focusing on asymmetric cost adjustments, or cost stickiness.Using a sample of U.S. firms from 2016 to 2024, both downside stickiness-hesitation to reduce costs when revenues declineand upside stickiness-hesitation to increase costs during unusually large revenue growth-are analyzed across four phases: Pre-COVID, early COVID, intermediate COVID, and post-COVID.Results show that cost asymmetry intensified during the early COVID period, weakened during the intermediate phase as postponed adjustments were executed, and largely reverted to pre-pandemic patterns post-COVID.Manufacturing firms exhibited more pronounced changes than wholesale and retail firms, reflecting differences in capital intensity, production complexity, and operational flexibility.Findings remain robust under alternative definitions of unusually large revenue increases and year-by-year analyses.These results provide empirical evidence that managerial beliefs about the persistence of macroeconomic shocks influence cost behavior.The observed patterns suggest that cost stickiness partly reflects deliberate managerial timing decisions rather than purely mechanical factors.The study also highlights avenues for future research, including behavioral methods to directly capture managerial expectations and extensions to other macroeconomic shocks.