How Does Employment Change with Changes in Sales Activity?

38 Pages Posted: 19 Jan 2018

See all articles by Fangjun Wang

Fangjun Wang

Xi'an Jiaotong University (XJTU)

Junqin Sun

Xi'an Jiaotong University (XJTU)

Mark C. Anderson

University of Calgary - Haskayne School of Business

Date Written: January 18, 2018

Abstract

This paper examines how employee numbers change with changes in sales activity. The arguments that, when sales decline, managers retain employees with higher levels of human capital or who have closer relations with managers are important to the literature on cost stickiness. However, there is no direct empirical evidence supporting these arguments. Using Chinese listed companies’ data, we document that labor is sticky - managers increase labor quantity to a larger extent when sales activity increases than they decrease labor quantity when sales activity decreases. Our empirical evidence also demonstrates that, when firms experience sales declines, managers retain more salespeople, technicians, accountants, and administrators, who possess higher levels of human capital or are closer to managers, than production personnel who are paid less. We also investigate whether labor stickiness varies with different ultimate ownership. Labor stickiness in state-owned enterprises (SOEs) is higher than that in non-SOEs, consistent with greater empire building incentives in SOEs and lower earnings management incentives relative to non-SOEs.

Keywords: cost behavior, human capital

JEL Classification: M41

Suggested Citation

Wang, Fangjun and Sun, Junqin and Anderson, Mark C., How Does Employment Change with Changes in Sales Activity? (January 18, 2018). 2018 Canadian Academic Accounting Association (CAAA) Annual Conference. Available at SSRN: https://ssrn.com/abstract=3105047 or http://dx.doi.org/10.2139/ssrn.3105047

Fangjun Wang

Xi'an Jiaotong University (XJTU) ( email )

26 Xianning W Rd.
Xi'an Jiao Tong University
Xi'an, Shaanxi 710049
China

Junqin Sun

Xi'an Jiaotong University (XJTU) ( email )

26 Xianning W Rd.
Xi'an Jiao Tong University
Xi'an, Shaanxi 710049
China

Mark C. Anderson (Contact Author)

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403-220-3926 (Phone)

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