Do Earnings Management Able to Reduce Stickiness Cost Levels?

Abstract

The purpose of this research is to determine the occurence of stickiness cost in SG&A (Selling, General and Administration) cost and to see whether the stickiness cost degree can be derive through earning management. Multiple linear regression using regression model from Anderson et al. and Farzaneh et al. are carried out to analyze the data. The results of this research show that SG&A cost is sticky, because it increased by 0.908% at 1% increase in sales but decreased by 0.016% at 1% decrease in sales. It happens because the manager retain the unutilized resources when facing a decline in sales. Furthemore, the results of this research find that earning management can derive the degree of stickiness cost, even cause anti-sticky in SG&A cost. It happens because the manager who has an incentive to avoid reporting loses and earning decreases, try to reduce cost when sales decline by earning management.

The Effect of Earning Management on Level of Stickiness Cost in Registered Consumer Goods Industry Sector Companies on the Indonesia Stock Exchange 2016-2018

“…Every 1% increase in net sales will increase SG&A costs by 1,077, whereas every 1% decrease in net sales will decrease SG&A costs by (1,077-1,484) -0.407%. Thus, it can be concluded that hypothesis one is accepted because the percentage increase is greater than the percentage decrease, or in other words, SG&A costs for consumer industry sector companies listed on the IDX in 2016-2018 are sticky, along with research conducted by Martania [3], Xue and Hong [6] and Wahyuningtyas and Nugrahanti [12] indication of stickiness cost behavior at SG&A costs. Based on table 2, the value of the coefficient of β1, β2 and β3 coefficient determine the truth of the hypothesis of the two proposed in this study.…”

“…The behavior of cost changes implemented in cost accounting is actually asymmetrical (proportional) characterized by the rigidity of costs when a decrease in activity occurs, contrary to the theory of the nature of activity volume and cost changes which are said to be symmetrical. The existence of this imbalance is assumed to occur due to a decrease in costs that are lower than the volume of activity that comes from a decrease in the volume of activity, a situation like this is called stickiness costs [3].…”

“…Cost Based on research by Hong and Xue [6], Jin [5] and Martania [3], earning management has a significant impact on reducing the level of stickiness costs in companies. The perspective of earning management can help managers to estimate the level of stickiness costs in the company more accurately, so that it makes management in making company decisions more precise and encourages increased company performance.…”

“…The movement of costs is said to be disproportionate because the amount of increase in costs caused by an increase in activity volume is greater than the amount of cost reduction due to a decrease in activity volume, and this condition is known as stickiness cost [3]. Thus, when sales decrease while costs are fixed (sticky), then the profit earned by the company will be reduced (low).…”

How Adjustment Cost Relate With Stickiness Cost?

“…Previous research also find the determinant of stickiness cost (Pichetkun and Panmanee, 2012). Some researches find the earnings management gave effect on stickiness cost (Rezaei and Barandagh, 2016;Martani, Eltivia and Setiawan, 2018). Bosch & Blandon (2011) found that size of the companies give effect on stickiness cost.…”