The Influence Of Executive Incentives On Expense Stickiness

The traditional cost performance model describes that there is a linear relationship between cost and business volume,the change in cost and expense is only related to the change in the volume of business,and has nothing to do with the direction of change in business volume.However,scholars have found that cost and expenses are sticky,that is,the relationship between cost and business volume is not strictly symmetrical.The asymmetry means that when the sales decline,the decrease of cost and expense is less than the increase of them when the sales increase at the same volume,which is called “Cost Stickiness”.The expense stickiness reflects the inefficiency of expense management to a certain degree,which has a certain negative impact on the realization of the ultimate goal of maximizing corporate value.So Studying the expense stickiness is of great importance.Scholars at home and abroad generally believe that agency problem is the root cause of expenses stickiness,but few scholars explore the impact of the profits driver behind executive on expense stickiness.In China,the agency problem is widespread.Based on this,this paper studies the cost stickiness from the perspective of executive compensation incentive,equity incentives ans pay gap.Further,according to the nature of the property rights of enterprises,the sample companies are divided into state-owned enterprise groups and non-state-owned enterprise groups,and explore the differences of the impact of executive incentives on Expense stickiness,which can provide reference for expense management for enterprise with different nature.This paper combines theoretical analysis with empirical research.Firstly,based on principal-agent theory,incentive theory,tournament theory and propose the hypothesis of this paper.Secondly,take the 2010-2017 Shanghai and Shenzhen A-share manufacturing listed companies as samples and regress with ABJ model.The reasons for choosing manufacturing are as follows:(1)Manufacturing is the basic industry of the national economy,and its development directly affects the development of various sectors of the national economy,as well as people's livelihood,Manufacturing industry plays a very important role in the national economy;(2)In the manufacturing industry,the executives' decisions have a great impact on expenses,and the expense stickiness varies among industries.Selectingmanufacturing industry as simple makes research results more targeted and representative.Through screening,a total of 7530 effective observations were obtained,drawing on the ABJ(2003)cost stickiness model.Taking executive monetary compensation incentives,pay gaps,and executive equity incentives as explanatory variables,and control some other variables that have an impact on the expense stickiness,and carry out multiple linear regression,then get the result of the impact of executive incentives on expense stickiness.The results show that executive monetary compensation incentives,pay gaps between executives and executive equity incentives can effectively suppress the level of expense stickiness in enterprises,and this inhibition is more obvious in non-state-owned enterprises than in state-owned enterprises.The contribution of this paper lies in: the paper studies the impact of executive incentives on expense stickiness from the perspective of the profit drivers behind the executive when making decisions,the perspective is new,it also expands the research results of expense stickiness and provides the company with improved expense management.