Managerial incentives, options, and cost-structure choices

• 成果类型: Article
• 署名作者: Aboody, David; Levi, Shai; Weiss, Dan
• 署名单位: University of California System; University of California Los Angeles; Tel Aviv University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-017-9432-0
• 发表日期: 2018
• 页码: 422-451
• 关键词: Risk-taking; STOCK-OPTIONS; sticky costs; Cash flows; COMPENSATION; BEHAVIOR; earnings; equity; determinants; uncertainty

摘要

This study explores the relationship between changes in managerial risk-taking incentives and adjustments of firms' cost structures, particularly the operating leverage (fixed-to-variable cost ratio). We find managers reduce operating leverage by substituting fixed costs with variable costs, mainly in the selling, general, and administrative (SG&A) and research and development (R&D) cost components, in response to reductions in option-based compensation following the issuance of FAS 123R. Managers facing a decrease in risk-taking incentives adjust operating leverage downward because high operating leverage intensifies the downside potential of earnings. Overall, we present compelling evidence that managers adjust the cost structure of their firms in response to a reduction in risk-taking incentives.