The agency problem, corporate governance, and the asymmetrical behavior of selling, general, and administrative costs

• Main Authors: LU, Hai, Hai LU, SOUGIANNIS, Theodore
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2011
• Subjects: SG&A Cost behavior; cost asymmetry; cost stickiness; agency problem; empire building; downsizing; corporate governance; Business and Corporate Communications; Corporate Finance
• Online Access: https://ink.library.smu.edu.sg/soa_research/1576; https://ink.library.smu.edu.sg/context/soa_research/article/2603/viewcontent/CHEN_et_al_2012_Contemporary_Accounting_Research__1_.pdf
• Institution: Singapore Management University

Selling, general, and administrative (SG&A) costs represent a significant proportion of thecosts of business operations. On average, the SG&A costs to total assets ratio is 27 percent,compared to the research and development (R&D) to total assets ratio of 3 percent(Banker, Huang, and Natarajan 2011). Due to the importance of SG&A costs, practitionerspay close attention to controlling SG&A spending. Understanding SG&A cost behaviorand the role of managers in adjusting the costs is thus important to researchers andpractitioners. Recent empirical research indicates that SG&A costs behave asymmetrically,that is, they increase more rapidly when demand increases than they decline when demanddecreases (Anderson, Banker, and Janakiraman 2003). This phenomenon (also labeled‘‘cost stickiness’’) has received much attention in the accounting literature (e.g., Balakrishnanand Gruca 2008; Anderson and Lanen 2007; Balakrishnan and Soderstrom 2009;Banker, Byzalov, and Plehn-Dujowich 2010).