Sticky cost behavior of bank’s executive compensation in four South East Asian countries

Slamet Sugiri, Rahmat Febrianto, Etik Kresnawati

Abstract


Some studies indicate that selling, general, and administrative (SG&A) cost have sticky characteristics. A cost is sticky if it increases as the activity increases, but it does not decrease as the activity decreases, in the same proportion as it increases. Different from previous studies that focus solely on SG&A costs in, mostly, manufacturing companies, we specifically focus on specific cost and specific industry. In this case, we focus on compensation costs in banks from four South East Asian countries. We choose banks’ executive compensations since banks in South East Asia have been publicly reporting their compensation. Executive compensation itself is a component of SG&A, so it may have sticky characteristic with it. We apply bootstrap method to tackle small sample problem in every country. Results show that executive compensations are not sticky, but, on the contrary, anti-sticky since the compensation decreases faster when the revenue decreases than its increases when the revenue increases. This finding gives a new perspective on the characteristics of executive compensation expenses as a part of SG&A cost.

Keywords


Sticky Cost Behavior, Corporate Governance, Banks, and Executive Compensation.

Full Text:

PDF

References


Anderson, MC, Banker, RD & Janakiraman, SN 2003, ‘Are selling, general, and administrative costs "sticky"?’, Journal of Accounting Research, vol. 41, no. 1, pp. 47-63.

Akhigbe, A, Madura, J & Ryan, H 1997, ‘CEO com-pensation and performance of commercial banks’, Managerial Finance, vol. 23, no. 11, pp. 40-55.

Banker, RD, Fang, S & Mehta, M 2013, ‘Cost behavior during the world economic crisis’, Working paper, Temple University, viewed 15 September 2016, www.fox.temple.edu/cms/wp-content/uploads/2013/08/MihirMehta.docx

Banker, RD, & Byzalov,D 2014, ‘Asymmetric Cost Behavior’, Journal of Management Accounting Research, vol. 26, no. 2, pp. 43-79.

Banker, RD, Byzalov, D, Ciftci, M & Mashruwala, R 2014, ‘The moderating effect of prior sales changes on asymmetric cost behavior’, Journal of Management Accounting Research, vol. 26, no. 2, pp. 221-246.

Banker, R D, & Datar, S 1989, ’Sensitivity, precising, and linear aggregation of signals for perfor-mance evaluation, Journal of Accounting Re-search, vol. 27, pp. 21-39.

Baradwaj, BG, Dubofsky, DA & Fraser, DR 1991, ‘Bidder returns in interstate and intrastate bank acquisitions’, Journal of Financial Services Research, vol. 5, pp. 261-273.

Barro, JR & Barro, RJ 1990, ‘Pay, performance, and turnover of bank CEOs. Journal of Labor Eco-nomics, vol. 8, pp. 448-481.

Biggar, D & Heimler, A 2005, ‘An increasing role for competition in the regulation of banks, Electronic paper, viewed 17 May 2014, ww.internationalcompetitionnetwork.org/uploads/library/doc382.pdf.

Bushman, R & Smith, A 2001, ‘Financial Accounting information and corporate governance’, Journal of Accounting and Economics, vol. 32, pp. 237–333.

Calleja, K, Steliaros, M & Thomas, DC 2006, ‘A note on cost stickiness: some international compari-sons’, Management Accounting Research, vol. 17, pp. 127-140.

Ciancanelli, P & Gonzalez, JAR 2000, ‘Corporate governance in banking: a conceptual frame-work, Electronic paper, viewed 17 May 2014,

Claessens, S , Djankov, S & Lang, S 2000. The sepa-ration of ownership and control in east asian corporations, Journal of Financial Economics, vol. 58, pp. 81-112.

Cooper, R & Kaplan, R, 1998, ‘The design of cost management systems: text, cases, and readings’ Upper Saddle River, NJ: Prentice Hall.

Côté, M. 2007. ‘Are CEOs overpaid?’, CA Magazine, November, 80.

Crumley, CR 2008, ‘A Study of the relationship between firm performance and CEO compen-sation in the U.S. commercial banking indus-try’, The Journal of Applied Management and En-trepreneurship, vol. 13, pp. 26-45.

Defeo, VJ, Lambert, RA & Larcker, DF 1989, ‘Execu-tive compensation effects of equity-for-debt swaps’, The Accounting Review, vol. 64, pp. 201-227.

Grossman, SJ & Hart, OD 1983, ‘An analysis of the principal agent problem’, Econometrica, vol. 51, pp. 7–45.

Harris, M & Raviv, A 1979, optimal incentive con-tracts with imperfect information’, Journal of Economic Theory, vol. 20, pp. 231–259.

He, DS, Teruya, J & Shimizu, T 2010, ‘Sticky selling, general, and administrative cost behavior and its changes in Japan’, Global Journal of Business Research, vol. 4, pp. 1-10.

Houston, JF & James, J 1995, ‘CEO compensation and bank risk: is compensation in banking structured to promote risk taking?', Journal of Monetary Economics 6, pp. 405-431.

Hubbard, RG & Palia, D 1995, Executive pay and performance: evidence from the U. S. banking industry’, Journal of Financial Economics, vol.39, pp. 105-130.

Jensen, MC & Murphy, K 1990, ‘Performance pay and top management incentives’, Journal of Po-litical Economy, vol. 98, pp. 225–264.

Kaplan, SN 2007, ‘Are CEOs really overpaid?’ The Corporate Board, Nov/Dec, p. 8-12

KPMG 2011, ‘Evolving banking regulation: a long journey ahead—the outlook for 2012’, viewed 12 June 2014,

Lambert, R & Larcker, D 1987, ‘An analysis of the use of accounting and market measures of per-formance in executive compensation contracts’, Journal of Accounting Research, vol. 25 (Supplement), pp. 85-125.

La Porta, R, Lopez-De-Silanes, F, Shleifer, A & Vishny, RW 1998, ‘Law and Finance’, Journal of Political Economy, vol. 106, pp. 1113-1155.

Leone, AJ, Wu, JS & Zimmerman, JL 2006, ‘asym-metric sensitivity of CEO cash compensation to stock returns’, Journal of Accounting and Eco-nomics, vol. 42, pp. 167–192.

Mehran, H 1995, ‘Executive compensation structure, ownership and firm performance’, Journal of Financial Economics, vol. 38, pp. 163–184.

Murphy, KJ 1985, ‘Corporate performance and ma-nagerial remuneration: an empirical analysis’, Journal of Accounting and Economics vol. 7, pp. 11-42.

Murphy, K 1999, ‘Executive compensation’, in: Ashenfelter, O & Carl, D , Handbook of labor economics, North-Holland, Amsterdam, vol. 1, pp. 2485–2563.

Murphy, K & Oyer, P 2003, ‘Discretion in executive incentive contracts’, Working paper, University of Southern California and Stanford University.

Nam, S-W 2006, ‘Corporate governance of banks: review of issues, in Nam, S-W & Lun, CS (ed.), Corporate governance of banks in Asia: A study of Indonesia, Republic of Korea, Malaysia, and Thail-and, vol. 2, Asian Development Bank Institute.

Nam, S-W & Nam, IC 2004, ‘Corporate governance in Asia: recent evidence from Indonesia, Re-public of Korea, Malaysia, and Thailand’, Asian Development Bank Institute.

Natarajan, R 1996, ‘Stewardship value of earnings components: additional evidence on the de-terminants of executive compensation’, The Accounting Review, vol. 71, pp. 1-22.

Noreen, E & Soderstrom, N 1997, ‘The accuracy of proportional cost models: evidence from hos-pital service departments’, Review of Accounting Studies, vol. 2, pp. 89-114.

OANDA 2013, Historical rate currency, viewed 6 June 2014, .

OECD 2004, Corporate governance: a survey of oecd countries, viewed 16 May 2016, .

OECD 2006, Policy brief on corporate governance of banks in asia. asian roundtable on corporate gover-nance, viewed 16 May 2016,

OECD 2007, Asia: overview of corporate governance frameworks in 2007, viewed 16 May 2016,

OECD 2011, Corporate governance in asia: progress and challenges, viewed 16 May 2016, .

Porporato, M & Werbin 2010, ‘Active cost man-agement in banks: evidence of sticky costs in argentina, brazil and canada, viewed 17 May 2014, .

Scott, WR 2006, Financial Accounting Theory, 4th ed, Pearson Education, Canada.

Shleifer, A & RW Vishny 1997, ‘A survey of corpo-rate governance’, Journal of Finance, vol. 52, no. 2, pp. 737-784.

Sloan, R 1993, ‘Accounting earnings and top execu-tive compensation’, Journal of Accounting and Economics, vol. 16, pp. 55–100.

Subramaniam, C & Weidenmier, ML 2003, ‘Addi-tional evidence on the sticky behavior of cost’, viewed 17 May 2014, .

Zhuang, J 1999, ‘Corporate governance in East Asia and some policy implications, in Asia Devel-opment Bank, ‘Economics and developments re-source center briefing notes’, no. 14.




DOI: http://dx.doi.org/10.14414/jebav.v19i3.771

Refbacks

  • There are currently no refbacks.




Copyright (c) 2017 Journal of Economics, Business & Accountancy Ventura



Abstracting & Indexing

 

 

Hasil gambar untuk ccbyncsa

Copyright @ 2010 Pusat Penelitian dan Pengabdian Masyarakat Sekolah Tinggi Ilmu Ekonomi (PPPM STIE)