Organized Labor Effects on SG&A Cost Behavior

42 Pages Posted: 28 Jan 2017 Last revised: 1 Sep 2021

See all articles by Hsihui Chang

Hsihui Chang

Drexel University

Xin Dai

Drexel University

Eric Lohwasser

Colorado State University

Yue Qiu

Temple University

Date Written: January 27, 2017

Abstract

This study examines how organized labor affects selling, general, and administrative (SG&A) cost behavior. We find that labor cost stickiness is higher for firms facing stronger unions, but the stickiness of SG&A costs is lower. This is consistent with an argument that managers’ discretionary decisions to retain SG&A resources are negatively affected by high labor adjustment costs that increase retention of slack labor resources during periods of decreased demand. We conduct an event analysis of labor union elections and find that SG&A cost stickiness decreases after firms experience new union certification. Cross-sectional tests show that the effect of labor union strength on SG&A cost stickiness is more pronounced for firms that are in better financial condition, have higher analyst coverage, and have higher net operating assets. We find a similar effect of union strength on discretionary spending when examining research and development costs.

Keywords: Organized Labor; Labor Unions; SG&A Cost Behavior; Sticky Costs

JEL Classification: J50, D22, M41

Suggested Citation

Chang, Hsihui and Dai, Xin and Lohwasser, Eric and Qiu, Yue, Organized Labor Effects on SG&A Cost Behavior (January 27, 2017). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2907186

Hsihui Chang

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

Xin Dai (Contact Author)

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

Eric Lohwasser

Colorado State University ( email )

Fort Collins, CO 80523
United States

Yue Qiu

Temple University ( email )

Philadelphia, PA 19122
United States

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