Sticky behaviour of selling, general, and administrative costs and earnings management practices: an international comparative perspective

Abstract

The current study focuses on earnings management as a significant determinant of the sticky cost phenomenon, for explaining both firm-level cost behaviour and cross-country differences in cost behaviour. We combine firm-level incentives to manipulate earnings with country-level differences in earnings management practices to provide a richer understanding of the effects of these practices to cost stickiness. Using a sample of G-7 countries (France, Germany, Italy, Japan, Canada, the UK and the USA) we find that cost stickiness is mitigated in the pervasiveness of earnings management.