CEO retirement and Cost Stickiness

Abstract

Cost stickiness is a crucial concern in accounting research. Prior research sheds light on how cost asymmetry is shaped by managerial decisions in adjusting resources either for value maximization or self-interest. In this paper, we investigate the relationship between the degree of cost stickiness and intentional resource adjustments made by Chief Executive Officers (CEOs) approaching retirement age. Based on a sample of United States firms between 1993 and 2019, our findings indicate that CEOs approaching retirement tend to reduce their selling, general, and administrative (SG&A) expenses in response to declining sales. This effect is more pronounced when motivating and monitoring mechanisms are weaker. We also explore the influence of cultural differences on corporate decision making and find that the reduction in SG&A costs is more substantial among CEOs coming from countries with a stronger future oriented language. We conduct additional analyses to address endogeneity concerns and to check the robustness of our main findings