The Effect of Corporate Governance on the Asymmetric Cost Behavior ： The Case of Chinese Listed Manufacturing Companies

Purpose The purpose of this paper is to provide further empirical evidence on the asymmetric cost behavior, cost stickiness, in an emerging country, Egypt, which lacks academic research on this subject. Design/methodology/approach This study uses multiple regression analysis to analyze the behavior of selling, general, and administrative costs (SG&A) and cost of goods sold (CGS) individually and jointly using total costs (TC) for the period 2004-2011 for Egyptian-listed firms. In addition, the study compares the cost behavior three years prior to and after the application of the corporate governance code in Egypt in 2007. Findings The results indicate that asymmetric cost behavior is common among Egyptian-listed firms as their SG&A, CGS, and TC were found to be sticky during the study period. The application of the corporate governance code in Egypt was found to affect the nature of SG&A – the behavior of these costs changed from sticky before the code to anti-sticky after the application of the code. Moreover, the code was found to affect the magnitude of stickiness of both CGS and TC. Originality/value Greater awareness about cost behavior is important for emerging markets such as Egypt in order to protect investors’ interests and satisfy their information needs. To the best of our knowledge, this study is the first to provide evidence on cost stickiness in Egypt. Moreover, this study provides further evidence on the correlation between corporate governance and asymmetric cost behavior.

Download Full-text

Co-CEOs and Asymmetric Cost Behavior

Sustainability ◽

10.3390/su11041046 ◽

2019 ◽

Vol 11 (4) ◽

pp. 1046 ◽

Cited By ~ 2

Author(s):

Jiyeon Lee ◽

Jin-Ha Park ◽

Jiwon Hyeon

Keyword(s):

Corporate Governance ◽

Foreign Ownership ◽

Governance Mechanism ◽

Governance Mechanisms ◽

Cost Behavior ◽

Corporate Governance Mechanism ◽

Asymmetric Cost ◽

External Governance ◽

Cost Stickiness ◽

Asymmetric Cost Behavior

This study investigates the effect of co-CEO structure on asymmetric cost behavior. A firm’s cost behavior reflects managers’ decision making about resources, which can be influenced by various factors. One of them relates to a manager’s decision to inefficiently reallocate their company’s resources when sales decline in pursuit of their incentives for empire-building and disincentives for downsizing. These inefficient resource allocations may result in asymmetric cost behavior, and ultimately be harmful to a firm’s sustainability. We consider the co-CEO structure as an alternative corporate governance mechanism that prevents managers from making inappropriate decisions. By doing so, we investigate whether the degree of cost stickiness differs between co-CEO and single-CEO structures, and whether the former complements external governance mechanisms, particularly foreign ownership, in mitigating cost stickiness. We analyze data from Korean listed companies for 2000–2013, and find that the cost stickiness is lower in the co-CEO structure than in the single-CEO structure. Thus, the co-CEO structure works as an alternative corporate governance mechanism to control the agency problem by inducing mutual monitoring among co-CEOs. Furthermore, the reduction in cost stickiness is greater for firms with higher foreign ownership, indicating that the co-CEO structure complements external governance mechanisms.

Download Full-text

Board characteristics and asymmetric cost behavior: evidence from Egypt

Accounting Research Journal ◽

10.1108/arj-11-2015-0148 ◽

2018 ◽

Vol 31 (2) ◽

pp. 301-322 ◽

Cited By ~ 1

Author(s):

Awad Elsayed Awad Ibrahim

Keyword(s):

Corporate Governance ◽

Emerging Economies ◽

Cost Model ◽

Ordinary Least Squares ◽

Content Type ◽

Board Characteristics ◽

Cost Behavior ◽

Asymmetric Cost ◽

Cost Stickiness ◽

Asymmetric Cost Behavior

PurposeThis paper aims to provide further evidence on asymmetric cost behavior (cost stickiness) from one of the emerging economies, Egypt. The study provides empirical evidence on the potential impact of corporate governance on nature and extent of asymmetric cost behavior.Design/methodology/approachThe study estimates three multiple regression models using ordinary least squares to examine the behavior of cost of goods sold (COGS) and the influence of board characteristics and other control variables in a sample of 80 listed companies during 2008-2013.FindingsThe analysis provides evidence on COGS asymmetric behavior, where the analysis finds that COGS increases by 1.05 per cent but decrease by 0.85 per cent for an equivalent activity change of 1 per cent, which contradicts the traditional cost model assumption that costs behave linearly. In addition, the analysis finds that firm-year observations with larger boards, role duality and higher non-executives ratio exhibit greater cost asymmetry than others, while firms-years with successive sales decrease, higher economic growth and institutional ownership found to exhibit lower cost stickiness.Originality/valueThis study contributes by providing evidence on asymmetric cost behavior from one of emerging economies. Further, the study extends the very few studies on the relationship between corporate governance and asymmetric cost behavior. In addition, the study contributes by examining a different cost type (COGS) that has been examined by very few studies. Finally, the study provides an evaluation of the 2007 Egyptian Corporate Governance Code in the cost behavior context.

Download Full-text