Abstract

http://ssrn.com/abstract=1014088
 
 

References (78)



 
 

Citations (6)



 


 



Managerial Empire Building, Corporate Governance, and the Asymmetrical Behavior of Selling, General, and Administrative Costs


Clara Xiaoling Chen


University of Illinois at Urbana-Champaign - Department of Accountancy

Hai Lu


University of Toronto - Rotman School of Management

Theodore Sougiannis


University of Illinois at Urbana-Champaign - Department of Accountancy

October 25, 2008

AAA 2008 Financial Accounting and Reporting Section (FARS) Paper
(CAAA) 2008 Annual Conference Paper

Abstract:     
Prior studies have documented the asymmetrical behavior of selling, general and administrative (SG&A) costs (i.e., SG&A costs increase more when activity rises than they decrease when activity falls), and have explained this phenomenon with economic factors. In this study, we draw on agency theory and argue that SG&A cost asymmetry is driven not only by economic factors but also by managerial empire-building incentives. Using data for the S&P 1500 firms over the period 1996-2005, we find that: 1) there is a positive association between managers' empire-building incentives and the degree of cost asymmetry; 2) there is a negative association between the strength of corporate governance and the degree of cost asymmetry, and this negative association is stronger in firm-years with a greater empire-building problem. Our findings suggest that the empire-building problem provides an additional explanation for SG&A cost asymmetry, and that corporate governance reduces cost asymmetry by preventing empire-building managers from over-spending on SG&A costs.

Number of Pages in PDF File: 41

Keywords: Cost Behavior, Cost asymmetry, Sticky Costs, Managerial Empire Building, Corporate Governance

JEL Classification: G34, M41

working papers series


Download This Paper

Date posted: September 13, 2007 ; Last revised: March 8, 2011

Suggested Citation

Chen, Clara Xiaoling and Lu, Hai and Sougiannis, Theodore, Managerial Empire Building, Corporate Governance, and the Asymmetrical Behavior of Selling, General, and Administrative Costs (October 25, 2008). AAA 2008 Financial Accounting and Reporting Section (FARS) Paper; (CAAA) 2008 Annual Conference Paper. Available at SSRN: http://ssrn.com/abstract=1014088 or http://dx.doi.org/10.2139/ssrn.1014088

Contact Information

Clara Xiaoling Chen (Contact Author)
University of Illinois at Urbana-Champaign - Department of Accountancy ( email )
1206 South Sixth Street
Champaign, IL 61820
United States
Hai Lu
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
Theodore Sougiannis
University of Illinois at Urbana-Champaign - Department of Accountancy ( email )
360 Wohlers Hall
1206 South Sixth Street
Champaign, IL 61820
United States
217-244-0555 (Phone)
217-244-0902 (Fax)
Feedback to SSRN


Paper statistics
Abstract Views: 2,982
Downloads: 817
Download Rank: 14,540
References:  78
Citations:  6

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.406 seconds