| dc.description.abstract | Abstract
Prior studies have predominantly explained cost stickiness with economic factors and have largely ignored the impact of managerial incentives on cost behavior. Therefore, this study is to examine the manager’s empire building incentives that lead to SG&A costs stickiness, after controlling for known economic factors. We use four variables to capture manager’s empire building incentives arising from the agency problem: free cash flow (FCF), chief executive officer (CEO) horizon, tenure, and variable pay. In addition, we also examine the corporate governance would mitigate the effect of the agency problem on SG&A costs stickiness. Our governance variables are the size of the board, CEO and Chairman separate, the ratio of outside directors, the ratio of institutional investor’ ownership.
We used companies listed on TSE, OTC, and Emerging-Market in Taiwan from 2005 to 2012 as sample. The empirical result shows while FCF is higher, CEO’s tenure is longer and CEO recently expect to leave , Manager’s empire building incentives be more positive associated with SG&A costs stickiness. Moreover, we also found that the size of the board is smaller, the ratio of outside directors is higher and the ratio of institutional investor ownership is higher would mitigate the effect of the agency problem on SG&A costs stickiness.
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