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Managerial Empire Building Critique

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Management Accounting Essay Critique

Managerial Empire Building, Corporate Governance, and the Asymmetrical Behavior of Selling, General, and Administrative Costs

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Management Accounting Essay Critique

Main aim of essay critique is to evaluate the results of the research paper The main aim of this essay critique is to evaluate some of the results between corporate governance and the asymmetrical behavior of cost, namely selling, general and administrative (SG&A). It will also discuss pertinent points concerning corporate governance and the limitations of this study.

There are a few important findings in this paper The purpose of this research paper is to examine whether managerial incentive is an additional explanation from the SG&A cost asymmetry and whether corporate governance plays an important role in mitigating this asymmetry. A secondary objective would be to examine whether the SG&A asymmetry manifests itself as either cost stickiness or cost speediness and whether corporate governance mitigates cost asymmetry through reducing cost stickiness, cost speediness or both. The results are as follow: 1) It was able to provide substantial evidence to explain the SG&A cost asymmetry phenomenon from the agency theory perspective (managerial incentive). 2) Besides that, it yielded a negative relationship between corporate governance and SG&A cost asymmetry. 3) For its secondary objective, the paper substantiated its concept of “cost speediness”, which provides an alternative interpretation to the cost stickiness explanation for asymmetry. 4) Finally, it also discovered that corporate governance mainly mitigates cost asymmetry by reducing cost speediness rather than cost stickiness.

The principal-agent problem is expected to stay In a corporation, the shareholders (principal) are the owners who employ the managers (agent) to run the company. The

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