Impact of Managerial Ownership on Cost Stickiness : Perspective from Prospector Theory

[Purpose]In this study, based on prospect theory, we examine whether managerial ownership and reference point affect cost stickiness. Managers’ risk preferences vary depending on the profit level and reference point of each individual company, and this is expected to affect cost asymmetry. [Methodology]Among companies listed on the domestic exchange and KOSDAQ, only companies with matching names of the largest shareholder and manager were selected as samples. The total sample number is 3,488. The cost stickiness of cost of sales and selling and administrative expenses was used as the dependent variable. [Findings]When analyzing the entire sample, the interaction term between managerial ownership and reference point was found to alleviate cost rigidity. As a result of dividing the companies into three groups according to their current level of profit and loss, no significance of the interaction term was found when the level of profit was high. It was found that in the case of deficit, the interaction term cost stickiness. [Implications]In companies with ROE above the industry average, the higher the managerial ownership, the more the cost stickiness is alleviated, and in the opposite case, the tendency is that it is not affected by the managerial ownership. This suggests that cost management and investment strategies should be different depending on the industry average ROE and the managerial ownership.