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Title
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Peer-based comparison and firms' discretionary cost decisions
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Author
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Abstract
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| This study investigates whether firms engage in peer‐based benchmarking in their decision‐making regarding selling, general and administrative expenses (SG&A) for a large sample of U.S. listed firms. Peer‐based comparison relates to comparing own performance against the performance of a meaningful reference group of other firms. SG&A are to a large extent discretionary, but optimal levels of (relative) SG&A are hard to assess. Based on the behavioural theory of the firm and institutional theory, we argue that peer‐based comparison is likely to be an important input to managers' SG&A decision processes. Results show that peer‐based comparison significantly drives changes in firms' reported SG&A. In addition, the effect of peer‐based comparison is found to depend on the firm's life cycle stage. Findings further indicate that peer‐based comparison has a significantly stronger effect in reference groups characterised by high(er) SG&A similarity. Results are robust to using several industry classification systems, as well as, multiple approaches to identify firm life cycles. |
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Language
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English
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Source (journal)
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Australian economic papers / University of Adelaide. - Adelaide
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Publication
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Hoboken
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Wiley
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2020
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ISSN
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0004-900X
[print]
1467-8454
[online]
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DOI
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10.1111/1467-8454.12199
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Volume/pages
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p. 1-23
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ISI
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000558082100001
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Full text (Publisher's DOI)
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Full text (publisher's version - intranet only)
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