On the measurement of US firms’ fixed operating costs

Abstract

The objective of this study is to estimate the fixed operating costs of American firms using a novel measure that considers firms’ flexibility. In the sample, fixed operating costs account for 15.5% of the firm’s sales. The results show a significant level of heterogeneity across sectors of economic activity and firm size. In particular, it is found that the fixed operating costs to sales ratio is typically higher in smaller firms and service-related industries. This result is connected to the cost structure of firms in each sector. A negative correlation between the fixed operating costs to sales ratio and the share of COGS in total operating costs is found, as well as positive correlations between this ratio and the shares of SG&A expenses and depreciation and amortization. Lastly, the impact of the COVID-19 pandemic in this measure of fixed operating costs is studied. It is found that whenever the pandemic years are excluded from the regression, the fixed operating costs to sales ratios obtained are lower, on average,for the same dataset of firms and years.

Date of Award	21 Oct 2022
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Nuno Silva (Supervisor)