Managers' Equity Incentives and Asymmetric Cost Behavior

2021 ◽  
Author(s):  
Eric R. Brisker ◽  
Jong Chool Park ◽  
Hakjoon Song
Keyword(s):  
Stock Price ◽  
Adjustment Costs ◽  
Activity Levels ◽  
Managerial Decision ◽  
Stock Volatility ◽  
Equity Incentives ◽  
Cost Behavior ◽  
Asymmetric Cost ◽  
Asymmetric Cost Behavior ◽  
Sales Increase

Recent research documents the phenomenon of asymmetric cost behavior where the cost structure of the firm changes differently in response to an increase in sales than to a decrease in sales and attributes this behavior to deliberate decisions made by managers that face adjustment costs. In this paper, we test the relationship between asymmetric cost behavior and equity incentives that are known to impact managerial decision making. We find that a measure of the sensitivity of managerial wealth to stock price (delta) is positively related to sticky costs where costs increase more quickly in response to a sales increase than they decline in response to a sales decrease. Conversely, we find that a measure of the sensitivity of managerial wealth to stock volatility (vega) is positively related to anti-sticky costs where costs increase to a lesser extent in response to a sales increase than they decline in response to a sales decrease. These results indicate the importance that equity incentives have on managerial resource adjustment decisions in response to changes in firm activity levels.

The Moderating Effect of Prior Sales Changes on Asymmetric Cost Behavior

2014 ◽  
Vol 26 (2) ◽  
pp. 221-242 ◽  
Author(s):  
Rajiv D. Banker ◽  
Dmitri Byzalov ◽  
Mustafa Ciftci ◽  
Raj Mashruwala
Keyword(s):  
Adjustment Costs ◽  
Theoretical Explanation ◽  
Managerial Decisions ◽  
Empirical Estimates ◽  
Cost Behavior ◽  
Asymmetric Cost ◽  
The Impact ◽  
Cost Stickiness ◽  
Asymmetric Cost Behavior ◽  
Sales Increase

ABSTRACT Recent research documents the empirical phenomenon of “sticky costs” and attributes it to a theory of deliberate managerial decisions in the presence of adjustment costs. We refine this theoretical explanation and show that it gives rise to a more complex pattern of asymmetric cost behavior that combines two opposing processes: cost stickiness conditional on a prior sales increase, and cost anti-stickiness conditional on a prior sales decrease. These predictions reflect the structure of optimal decisions with adjustment costs and the impact of prior sales changes on managers' expectations about future sales changes. Empirical estimates for Compustat data support our hypotheses. We further verify our predictions using additional proxies for managers' expectations, and show that our model offers important new insights. JEL Classifications: D24; M41.

The Magnitude of Sales Change and Asymmetric Cost Behavior

2018 ◽  
Vol 31 (3) ◽  
pp. 65-81 ◽  
Author(s):  
Mustafa Ciftci ◽  
Taisier A. Zoubi
Keyword(s):  
Small Current ◽  
Slack Resources ◽  
Large Current ◽  
Cost Behavior ◽  
Asymmetric Cost ◽  
The Impact ◽  
Cost Stickiness ◽  
Asymmetric Cost Behavior ◽  
Sales Increase ◽  
Jel Classifications

ABSTRACT We investigate the impact of the magnitude of current sales changes on asymmetric cost behavior. We expect that managers are likely to consider small (large) current sales decreases as temporary (permanent). Therefore, they will be less (more) likely to cut costs for small (large) current sales decreases. Accordingly, we predict and find that, conditional on a prior sales increase, cost stickiness is greater for small current sales changes than for large current sales changes. In addition, prior research suggests that, conditional on a prior sales decrease, slack resources retained from the prior period might lead to cost anti-stickiness. We expect that slack resources retained from the prior period will have a greater (smaller) impact on cost behavior for small (large) current sales changes. Accordingly, we predict and find that, conditional on a prior sales decrease, cost anti-stickiness is greater for small current sales changes than for large current sales changes. JEL Classifications: M41; M46; G12.

Tax Avoidance and Asymmetric Cost Behavior

2018 ◽  
Vol 35 (4) ◽  
pp. 723-747 ◽  
Author(s):  
Shawn Xu ◽  
Kenneth Zheng
Keyword(s):  
Negative Relationship ◽  
Tax Avoidance ◽  
Adjustment Costs ◽  
Economic Benefits ◽  
Business Strategies ◽  
Cost Behavior ◽  
Asymmetric Cost ◽  
Cash Savings ◽  
The Relationship ◽  
Asymmetric Cost Behavior

This study examines the relationship between tax avoidance and asymmetric cost behavior. This relationship arises due to direct economic benefits of cash savings from tax avoidance. On one hand, cash savings from tax avoidance may prompt managers to retain excess resources when activity goes down. On the other hand, tax avoidance may alleviate managers’ concerns about adjustment costs due to cost reductions in sales downturns. Using a large sample spanning the 1993-2013 period, we document a significantly negative relationship between tax avoidance, proxied by cash effective tax rate, and asymmetric cost behavior. The result suggests that asymmetric cost behavior is less pronounced when tax avoidance is higher. We further find that this relationship varies with firms’ business strategies, cash flow volatility, and tax fees paid to the auditor. This study advances the understanding of accounting researchers on the relationship between tax avoidance and managers’ resource adjustment decisions.

Asymmetric Cost Behavior

2014 ◽  
Vol 26 (2) ◽  
pp. 43-79 ◽  
Author(s):  
Rajiv D. Banker ◽  
Dmitri Byzalov
Keyword(s):  
Empirical Evidence ◽  
Adjustment Costs ◽  
Financial Accounting ◽  
Alternative View ◽  
Behavior Model ◽  
Managerial Decisions ◽  
Cost Behavior ◽  
Resource Adjustment ◽  
Asymmetric Cost ◽  
Asymmetric Cost Behavior

ABSTRACT We synthesize the growing literature on asymmetric cost behavior—a new way of thinking about costs and, by extension, earnings. While the traditional cost behavior model describes a mechanistic relation between activity and costs, this alternative view recognizes the primitives of cost behavior—resource adjustment costs and managerial decisions. These primitives give rise to “sticky” and “anti-sticky” costs, along with traditional “fixed” and “variable” costs as extreme cases. We formulate an integrated framework of asymmetric cost behavior and review the empirical evidence in support of this framework and its implications for both cost and financial accounting research. We clarify empirical issues and show that recent contrary claims about the validity of findings in the literature are unwarranted because of econometric errors. We present new comprehensive evidence from Global Compustat, which demonstrates that asymmetric cost behavior is a pervasive global phenomenon. We also discuss research opportunities.

Labor adjustment costs and asymmetric cost behavior: An extension

2020 ◽  
Vol 46 ◽  
pp. 100647 ◽  
Author(s):  
Joanna Golden ◽  
Raj Mashruwala ◽  
Mikhail Pevzner
Keyword(s):  
Adjustment Costs ◽  
Labor Adjustment Costs ◽  
Cost Behavior ◽  
Labor Adjustment ◽  
Asymmetric Cost ◽  
Asymmetric Cost Behavior

Strategic Positioning and Asymmetric Cost Behavior

2013 ◽  
Author(s):  
Rajiv D. Banker ◽  
Renee Flasher ◽  
Daqun Zhang
Keyword(s):  
Strategic Positioning ◽  
Cost Behavior ◽  
Asymmetric Cost ◽  
Asymmetric Cost Behavior

The Effect of Strategy on the Asymmetric Cost Behavior of SG&A Expenses

2020 ◽  
Author(s):  
Apostolos A. Ballas ◽  
Vassilios-Christos Naoum ◽  
Orestes Vlismas
Keyword(s):  
Cost Behavior ◽  
Asymmetric Cost ◽  
Asymmetric Cost Behavior

Real Earnings Smoothing and Asymmetric Cost Behavior

2021 ◽  
Author(s):  
Nikolaos I. Karampinis ◽  
Giannis D. Lessis ◽  
Dimitrios Ntounis ◽  
Orestes Vlismas
Keyword(s):  
Earnings Smoothing ◽  
Cost Behavior ◽  
Asymmetric Cost ◽  
Asymmetric Cost Behavior

scholarly journals Sticky cost behavior: evidence from Egypt

2017 ◽  
Vol 7 (1) ◽  
pp. 16-34 ◽  
Author(s):  
Awad Elsayed Awad Ibrahim ◽  
Amr Nazieh Ezat
Keyword(s):  
Corporate Governance ◽  
Information Needs ◽  
Academic Research ◽  
Content Type ◽  
Listed Firms ◽  
Corporate Governance Code ◽  
Cost Behavior ◽  
Asymmetric Cost ◽  
Cost Stickiness ◽  
Asymmetric Cost Behavior

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.

The Effect of Co－CEO Structure on Asymmetric Cost Behavior

2021 ◽  
Vol 21 (3) ◽  
pp. 123-145
Author(s):  
Jun Yeung Hong ◽  
Gun Lee
Keyword(s):  
Cost Behavior ◽  
Asymmetric Cost ◽  
Asymmetric Cost Behavior
Sign in / Sign up

Export Citation Format

Share Document