Managers' Equity Incentives and Asymmetric Cost Behavior

What is it about?

Our study makes two important contributions. First, as described above, recent accounting literature has started examining the role of managerial motivations in asymmetric cost behavior and we extend this emerging stream of studies by investigating the association between equity incentives and asymmetric cost behavior. Further, we extend the literature that examines associations between equity incentives and real activities management by investigating its impact on cost stickiness. Second, we also contribute to the managerial compensation literature that examine the effect that managerial compensation has on corporate financial and operating policies such as capital structure, investments, acquisitions, firm performance, and debt policies. This paper extends this literature by showing that managerial compensation incentives directly impact cost management decisions in response to changes in sales.

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