The Effect of Managers’ Delta and Vega on the Asymmetric Cost Behavior of Companies

Document Type : Original Article

Authors

• Sana Forsat
• Ali Ashtab
• Parviz Piri

Department of Accounting, Faculty of Economics and Management, Urmia University, Urmia, Iran

10.22067/ijaaf.2024.45029.1439

Abstract

This paper examines the impact of managers’ stock incentives on changes in sales and selling, general, and administrative (SG&A) costs, which can help determine whether SG&A costs are sticky or non-sticky. This study employs two criteria for assessing managers’ incentives: managers’ wealth sensitivity to stock price changes (Delta) and managers’ wealth sensitivity to stock returns (Vega). The first hypothesis posits that Delta influences cost stickiness, leading to a more significant cost increase in response to rising sales compared to decreasing sales. Conversely, the second hypothesis suggests that Vega directly affects non-sticky costs, whereby costs increase less in response to growing sales than decreasing ones. The statistical sample for this study comprises 138 companies from 2008 to 2023. A panel regression model was utilized to test the hypotheses, revealing that Delta significantly positively affects cost stickiness, while Vega has a significant negative effect.

Keywords

• Asymmetric Cost Behavior
• Delta and Vega
• Managers’ Incentives
• Managerial Stock

Main Subjects

• Accounting

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