The effect of management control mechanisms through risk-taking incentives on asymmetric cost behavior

被引:0
作者
Wulung Li
Ramachandran Natarajan
Yan Zhao
Kenneth Zheng
机构
[1] Texas A&M International University,Division of International Banking and Finance Studies
[2] University of Texas at Dallas,Naveen Jindal School of Management
[3] University of Wyoming,Department of Accounting and Finance, College of Business
来源
Review of Quantitative Finance and Accounting | 2021年 / 56卷
关键词
Risk-taking incentives; Demand uncertainty; Cost behavior; Cost stickiness; Cost elasticity; D22; D25; D81; M41; M52;
D O I
暂无
中图分类号
学科分类号
摘要
We investigate the relationship between management control mechanisms, specifically risk-taking incentives targeted at mitigating moral hazard, and cost behavior during periods of sales declines relative to periods of sales growth. We find that incentive vega of both chief executive officers and top five paid executives is associated with expedited reductions in selling, general, and administrative cost in periods of sales declines. These results are consistent with the Sedatole et al. (J Account Res 50(2):553–592, 2012) finding that incentive vega induces managers to adopt a more elastic cost structure, presumably because managerial operational decisions, particularly outsourcing, increase firms’ total risk. We conduct an additional analysis to rule out an alternative explanation that the expedited cost cuts may be driven by incentives to manage earnings. Finally, our results are robust to alternative measures of risk-taking incentives. Overall, our findings support the view that management control mechanisms through risk-taking incentives are an important determinant of management cost adjustment decisions in periods of demand declines relative to periods of demand growth.
引用
收藏
页码:219 / 243
页数:24
相关论文
共 119 条
  • [1] Aboody D(2018)Managerial incentives, options, and cost-structure choices Rev Account Stud 23 422-451
  • [2] Levi S(2003)The costs of hiring and separations Labor Econ 10 499-530
  • [3] Weiss D(1999)The entry and exit of workers and the growth of employment: an analysis of French establishments Rev Econ Stat 81 170-187
  • [4] Abowd JM(2003)Are selling, general, and administrative costs “sticky”? J Account Res 41 47-63
  • [5] Kramarz F(2012)Executive stock options, differential risk-taking incentives, and firm value J Financ Econ 104 70-88
  • [6] Abowd JM(2013)The relation between equity incentives and misreporting: the role of risk-taking incentives J Financ Econ 109 327-350
  • [7] Corbel P(2014)Cost structure and sticky costs J Manag Account Res 26 91-116
  • [8] Kramarz F(2013)Employment protection legislation, adjustment costs and cross-country differences in cost behavior J Account Econ 55 111-127
  • [9] Anderson M(2014)The moderating effect of prior sales changes on asymmetric cost behavior J Manag Account Res 26 221-242
  • [10] Banker R(2014)Demand uncertainty and cost behavior Account Rev 89 839-865