Stakeholder Orientations and Cost Management
50 Pages Posted: 19 Aug 2013 Last revised: 18 Oct 2017
Date Written: October 17, 2017
We examine the effect of stakeholder orientation on firms’ cost management as proxied by Selling, General and Administrative (SG&A) cost stickiness. Using a sample of 19,783 firm-years, we find that customer and employee orientation are associated with greater SG&A cost stickiness. Furthermore, the effect of customer orientation on SG&A cost stickiness is more prominent in firms where SG&A costs create high future value, growth firms, and firms with strong corporate governance. In contrast, the effect of employee orientation on SG&A cost stickiness is stronger in firms where SG&A costs create low future value, mature firms, and firms with weak corporate governance. Overall, the association between customer orientation and SG&A cost stickiness is consistent with efficiency considerations (i.e., adjustment costs). In contrast, the association between employee orientation and SG&A cost stickiness is consistent with agency motives such as empire building or “a preference for a quiet life.” In sum, we provide evidence that corporate orientation toward different stakeholders can have different efficiency implications in the context of SG&A resource adjustments and cost management.
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