The Effect of Strategy on the Asymmetric Cost Behavior of SG&A Expenses

Abstract

This study investigates the effect of strategy on the intensity and direction of asymmetric cost behavior of SG&A expenses. Employing a sample of US-listed firms for the period 1991-2014, we provide empirical evidence that a firm’s strategic orientation determines the direction and intensity of cost asymmetry. Firms classified as prospectors exhibit SG&A cost stickiness whereas firms classified as defenders exhibit SG&A cost anti-stickiness. Sensitivity and causality tests indicate that a firm’s strategic positioning and its portfolio of intangible resources affect independently the resource allocation decisions that are associated with the direction of cost asymmetry.

Keywords: Asymmetric Cost behavior, Strategy

JEL Classification: L10, M10, M41