The Effects of the Earnings Management and Corporate Governance on Expense Stickiness

Abstract

Expense stickiness is an important issue in accounting and economics research. The recent studies demonstrate that the costs have asymmetrical behavior which means the rate of reduction in costs while reducing the sales is less than the rate of increasing the sales at the same rate. The asymmetrical behavior is called expense stickiness. The literature has shown that expense stickiness cannot be separated from managers’ motivations. On the other hand, the mechanisms of corporate governance result in inhibition of managers’ motivations. In this study, the influence of earnings management and corporate governance on expense stickiness has been carried out and the number of 112 firms was selected in the period of the years 2010-2016 as a statistical sample. To analyze the data, the software EViews7 is used. The regression model using panel data with fixed effects and random effects were investigated. The results of this study suggest that earnings management on expense stickiness is effective. The effects of corporate governance under two components ownership concentration and institutional ownership were investigated, and no significant relationship was observed. Finally, we investigated the interaction effects of earnings management and corporate governance on expense stickiness. The empirical results show that no effects on cost stickiness. Keywords: