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The Agency Problem, Corporate Governance, and the Asymmetrical Behavior of Selling, General, and Administrative Costs

Contemporary accounting research, 2012-03, Vol.29 (1), p.252-282 [Peer Reviewed Journal]

2011 The Canadian Academic Accounting Association ;Copyright Canadian Academic Accounting Association Spring 2012 ;ISSN: 0823-9150 ;EISSN: 1911-3846 ;DOI: 10.1111/j.1911-3846.2011.01094.x

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  • Title:
    The Agency Problem, Corporate Governance, and the Asymmetrical Behavior of Selling, General, and Administrative Costs
  • Author: CHEN, CLARA XIAOLING ; LU, HAI ; SOUGIANNIS, THEODORE
  • Subjects: Accounting firms ; Agency ; Asymmetry ; Corporate governance ; Cost accounting ; Costs ; Determinants ; Financial incentives ; S&P 1500 ; Studies
  • Is Part Of: Contemporary accounting research, 2012-03, Vol.29 (1), p.252-282
  • Description: The author examines whether the agency problem is an important determinant for the selling, general, and administrative (SG&A) cost asymmetry or cost stickiness phenomenon and whether strong corporate governance mitigates the agency problem in this case. Prior studies have documented the asymmetrical behavior of SG&A costs (i.e., SG&A costs increase more when activity rises than they decrease when activity falls) and have explained this phenomenon primarily with economic factors. Using data for S&P 1,500 firms over the period 1996-2005, he finds that the degree of SG&A cost asymmetry is positively associated with managers' empire-building incentives due to the agency problem (measured by free cash flow and chief executive officer horizon, tenure, and compensation structure), suggesting that the agency problem provides an additional explanation for SG&A cost asymmetry. Moreover, he finds that strong corporate governance mitigates the positive association between the agency problem and the degree of SG&A cost asymmetry.
  • Publisher: Oxford, UK: Blackwell Publishing Ltd
  • Language: English
  • Identifier: ISSN: 0823-9150
    EISSN: 1911-3846
    DOI: 10.1111/j.1911-3846.2011.01094.x
  • Source: Alma/SFX Local Collection
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