Accepted by Abbie Smith. The authors are grateful for constructive suggestions and helpful comments from an anonymous reviewer, Yakov Amihud, Eli Amir, Itay Ater, Rajiv Banker, Avraham Beja, Jeffrey Callen, Gavin Cassar, Mustafa Ciftci, Bart Dierynck, Surya Janakiraman, Michael Maher, Raj Mashruwala, Robert Pindyck, K. Sivaramakrishnan, Avi Wohl, participants of the American Accounting Association (AAA) Annual Meetings, and the Management Accounting Section Midyear Meeting. We gratefully acknowledge financial support from the Henry Crown Institute of Business Research in Israel. Part of this research was performed during a visit to London Business School. An earlier version of this study was titled “Do Managers’ Deliberate Decisions Induce Sticky Costs?”
Do Earnings Targets and Managerial Incentives Affect Sticky Costs?
Article first published online: 16 NOV 2012
Copyright ©, University of Chicago on behalf of the Accounting Research Center, 2012
Journal of Accounting Research
Volume 51, Issue 1, pages 201–224, March 2013
How to Cite
KAMA, I. and WEISS, D. (2013), Do Earnings Targets and Managerial Incentives Affect Sticky Costs?. Journal of Accounting Research, 51: 201–224. doi: 10.1111/j.1475-679X.2012.00471.x
- Issue published online: 14 JAN 2013
- Article first published online: 16 NOV 2012
- Accepted manuscript online: 30 SEP 2012 06:54AM EST
- Received 25 January 2010; accepted 11 September 2012
This study explores motivations underlying managers’ resource adjustments. We focus on the impact of incentives to meet earnings targets on resource adjustments and the ensuing cost structures. We find that, when managers face incentives to avoid losses or earnings decreases, or to meet financial analysts’ earnings forecasts, they expedite downward adjustment of slack resources for sales decreases. These deliberate decisions lessen the degree of cost stickiness rather than induce cost stickiness. The results suggest that efforts to understand determinants of firms’ cost structures should be made in light of the managers’ motivations, particularly agency-driven incentives underlying resource adjustment decisions.