The Empirical Research On The Effect Of Earnings Management Incentives On Cost Stickiness

In consideration of the key role of manufacturing enterprises for economic development, it is necessary to make strengthen cost management. The cost theory evolves from cost behavior to cost stickiness. Scholars at home and abroad find that the manufacturing industry have stickiness are widespread based on a series of study. The phenomenon of cost stickiness still exists in the sub-sectors for each sub-sector has its typical cost structure. It is necessary for the enterprises‘ managers to be knowledgeable about such situation, because their decisions would ultimately depend on the motivation of managers. There is a fact that various motivations would have different effect on cost stickiness. So the effect of earnings management incentives on cost stickiness is researched.Firstly, the relevant literature of cost stickiness and the difference of stickiness in various industries are reviewed. Then, the relationship between earnings management incentives and cost is commented. Secondly, the notions of earnings management, earnings management incentives and cost stickiness are introduced. And related theories are cited, such as, contract theory, efficiency theory and principal-agent theory. On the basis of the relationship between earnings management incentives and cost stickiness, research assumptions are derived which include two aspects. On the one hand, whether there is cost stickiness in manufacturing sub-sectors. On the other hand, whether there is impact of the avoid loss incentives and the ―big bath‖ incentive on cost stickiness. 2046 business data of the manufacturing companies from 2011-2014 are selected from A shares of Shanghai and Shenzhen. According to industry classification, the samples are classified to research the cost stickiness of manufacturing sub-sectors.The empirical results showed that the cost stickiness widely exists in the manufacturing sub-sectors, and the manufacturing sub-sectors stickiness degree is various. It is found that different earnings management incentives have different impact on sticky cost. The evidence illustrates that the ―big bath‖ incentives improve the degree of cost stickiness in manufacturing sub-sectors, on the contrary, the avoid loss incentives significantly decrease the level of cost stickiness. It is helpful from the perspective of earnings management incentives to explore the cost stickiness of manufacturing sub-sectors. Then the effect of different management incentives on manufacturing sub-sectors can be recognized and the cost can be controlled effectively. Consequently, the degree of the cost stickiness is reduced, and the competitiveness of manufacturing sub-sectors is enhanced.