Cost Stickiness and the Information Content of the SG&A Ratio

Abstract

The following chapter addresses the relationship between cost stickiness and fundamental analysis by using the example of contradictory interpretations of an increase in the ratio of selling, general, and administrative costs to sales (SG&A ratio). Anderson et al. [2007] attribute the existence of positive and negative impacts of an increase in this important ratio on future performance to the sticky behavior of costs. I provide an alternative approach to determine the information content of the SG&A ratio and compare this approach to the method suggested by Anderson et al. [2007]. The analysis in the following chapter is largely based on my research study, which I have presented at the 2009 AAA Northeast Region Meeting in Cambridge, Massachusetts and at the Journal of Management Accounting Research Conference in Seattle, Washington. A former version of this study has also been published as a double-peer-reviewed journal article in the 2010 issue of the Journal of Management Accounting Research.