analysis of selling general and administrative cost stickiness on net sales at different economic condition

ANALYSIS OF SELLING, GENERAL AND ADMINISTRATIVE COST STICKINESS ON NET SALES AT DIFFERENT ECONOMIC CONDITION (Empirical Study of Manufacturing Company Listed in the Indonesia Stock Exchange)

Astri Novianti & Primanita Setyono I. INTRODUCTION

According to Cashin & Polimeni (1998, p.19), cost is defined as the benefits given up to acquire goods or services. It means that cost is spent out by company in order to this company gets benefits in the future. Related to volume, there are three kinds of cost varied with changes in the volume of production; fixed cost, variable cost, and semi-variable cost. Three of these costs have different behavior depending on the change of input or output. In traditional theory of cost behavior, cost is divided into fixed and variable cost in which cost responses mechanically to activity volume. Mechanical means that cost adjust without management intervention (based on production schedule). However, there aremany arguments regard to this characterization of cost behavior which is inconsistent with the way that managers manage cost (Cooper & Kaplan, 1998 cited in Anderson & Lanen, 2007), such as the action of managers in deliberately adjusting resources as response to changes in volume. This matter effects on costs which increase more when volume rises than they decrease when volume is fallen by an equivalent amount. It is called as sticky cost. From the definition, it is shown that sticky cost is an asymmetric reaction to activity change.

The degree of asymmetric cost behavior varies as result of deliberate decisions by managers associated with adjustment cost (Anderson, Chen, & Young, 2005). For example in Windyastuti & Biyanto (2005) research; In their research, they found that the degree of cost stickiness increase with asset intensity but not with employee intensity. In order to test the stickiness, it is used selling, general and administrative (SG&A) cost as

cost proxy and net sales as the relevant driver proxy. There are some considerations using SG&A as cost proxy, as follows: 1) in previous research, it is shown that sticky is found in operation cost than other cost categories (Anderson, et al, 2005), 2) according to Hansen & Mowen (2000, p. 46), in manufacture organization, the rate of this cost can be significant (± 25% of sales) and by controlling them, manufacture can lean in bigger amount rather than other production costs. While, the rate of SG&A cost of net sales in this sample is ± 12.3%. Inasmuch as SG&A cost is the subjected of managerial discretion, this costs tend to have an asymmetric cost behavior. Hence, it is important for us to know how managers manage this cost because the ratio of selling, general and administrative costs to sales are closely monitored by investors and analysts (Palepu, Healy & Bernard, 2000 cited in Anderson, et al, 2006). Other considerations of manager in taking decisions, such as the economic condition of country at that time. As we know that, in 1997, Indonesia went through an economic crisis implicating in all sectors. The crisis effects on the decreasing of economic growth rate in Indonesia for 13.06% in 1998. The economic activity getting the highest negative growth is activity relying on import component (Pancawati, Pramuka & Jaryono, 2004). Manufacture is one of this groups (-12% growth). From this number, we can see that because of negative growth, most of manufactures got declining in revenue. The worst condition that probably can be happened is the inability of company to pay the expenses. The most important thing is how to sustain and normalize the condition in company itself. Surely, what managers do in economic crisis will be different in health condition. It will give make difference in the degree of cost stickiness or even there is no cost stickiness. Based on the previous

research (Windyastuti, et al, 2005), it is proven that the degree of selling, general and administrative cost stickiness in growing economic condition is greater.

This research is to measure the stickiness of selling, general and administrative cost on net sales and the degree of stickiness cost of Indonesia’s manufacturing industries associated with adjustment cost (asset and employee intensity) before, during, after economic crisis.

II. LITERATURE & HYPOTESIS The Stickiness of Selling, General and Administrative Cost

Selling costs include cost of promoting, selling, and distributing products and services, can be divided into fixed, variable, and semi-variable costs. Actually, these costs move based on their behavior (costs respond mechanically to activity volume). However, in Noreen & Soderstrom research (Anderson, et al, 2004), it is shown that selling, general and administrative costs vary with sales volume but do not change proportionately with changes in sales revenue (asymmetric cost behavior). These costs increase more when volume rises than the decrease when volume fallen by an equivalent amount. It is called as sticky cost by Anderson, Banker, & Janakiraman (Medeiros & Costa, 2004).

The stickiness of cost happened because of the management intervention in deliberate decisions. It is said that cost stickiness is consistent with a model in which managers deliberately adjust resources as response to changes. This opinion is supported by the evidence research that is done by previous researches, such as Medeiros et al. (2004) in Brazilian firms, Anderson et al. (2005) in Southwest Airlines, Windyastuti et al. (2005) in Indonesia firms listed in Jakarta Stock Exchange. When company’s revenue

decreased, managers must decide whether to maintain resources and bear the costs to maintain that resources or reduce unutilized resources and incur the adjustment costs. If managers believe that better condition will happen in the near future (temporary decline revenue), they will choose to maintain resources and delay adjustment cost.

The degree of cost stickiness associated with adjustment cost

It is stated in the previous that sticky cost is consistent with the way that managers manage cost (managerial mode). Managers deliberately adjust resources in response to changes in volume. Hence, the degree of cost stickiness is sensitive to the variables that proxy for adjustment cost (such as employee intensity, asset intensity).

The degree of cost stickiness associated with employee intensity

It is common for companies to face a fluctuated demand, moreover in this globalization era with tight competition. Thus, it is important to the company to have good resource (employees) in order to win this competition. There are several ways that a company has done in having good employees, such as doing recruitment, training, giving award for a good performance, etc. When a company’s sales decrease, it is difficult for company to fire the employee to do adjustment cost (moreover, company that owns the high employee intensity) because company believes the better demand in the near future and firing will be costly.

The degree of cost stickiness associated with asset intensity

Beside employee intensity, asset intensity also gives impact on selling, general, and administrative cost stickiness. When net sales decreased, management will reduce the number of purchased resources or even stop the purchased. It is easy to reduce or even stop the purchase if management buys from outside. Nevertheless, the condition will be

different for company that uses own resource (company’s assets). Selling the assets will give lose for company because the company has to pay selling costs and loses firm specific investment.

The impact of economic condition with the degree of cost stickiness

The economic condition of country in a certain time can give an influence in all activities. It also influences the degree of cost stickiness. It is like what Anderson et al. (2003, cited in Anderson, et al, 2005) said that the degree of stickiness is sensitive to expect permanence of activity change (such as, macro-economic growth, previous period’s activity). This opinion is also supported by Windyastuti et al. (2005) research. Hypothesis Formulation

Hypothesis can be formulated, as follows:

H1a : The selling, general and administrative cost stickiness happened before economic crisis

H1b : The selling, general and administrative cost stickiness is avoided during economic crisis.

H1c : The selling, general and administrative cost stickiness happened after economic crisis

H2a : The degree of cost stickiness increased with the employee intensity of manufacture before

economic crisis period.

H2b : The degree of cost stickiness did not increase with the employee intensity of manufacture during

economic crisis period.

H2c : The degree of cost stickiness increased with the employee intensity of manufacture after

economic crisis period.

H3a : The degree of cost stickiness increased with the asset intensity of manufacture before economic

H3b : The degree of cost stickiness did not increase with the asset intensity of manufacture during

economic crisis period.

H3c : The degree of cost stickiness increased with the asset intensity of manufacture after economic

crisis period.

III. RESEARCH METHOD Population and Sample

The population of this research is manufacture listed in Indonesia Stock Exchange. Sample is chosen by purposive sampling method. Sample selection of this research are based on criteria as follows:

1. The chosen samples are manufacture companies listed in the Indonesia Stock Exchange from 1993 until 2004.

2. Manufacture companies that are stated selling, general and administrative cost, and net sales from 1993 – 2004 continually.

3. Manufacture companies that are stated employee, and total assets from 1994 – 2004 continually.

4. The nominal of selling, general and administrative cost is smaller than net sales. Then, manufacture which has bigger SG&A cost than net sales is not used as the sample.

5. The final step is to trim the top and bottom 0.5% for each variable (in order to delete the extreme data or outlier).

Data was taken from Indonesian Capital Market Directory (1993 – 2004). Based on the above criteria, there are 69 companies (cross section) chosen each year. The total is 621 observations for the period of nine years (Table 3.1).

Variable Operation

Variables used in this research are:

1. The ratio of current to previous selling, general and administrative cost. 2. Ratio of current to previous net sales

3. Indicator variable

In order to test the stickiness, it is added the indicator variable (dummy decline) in this research (following the previous research). In as much as this matter, it is added the indicator variable to regression equation that takes value “1” when activity falls and “0” when activity do not falls.

4. Employee intensity

Employee i,t

NSi,t-1

5. Asset intensity

Total Assets i,t

NSi,t-1

Method of Analysis

It is using the panel data log-linear regression to test stickiness (by using Eviews Software Version 4). It is like the previous research, panel data is used because research data include some companies in certain time. Panel data is useful to increase the degree of freedom and to decrease the collinearity between independent variable (Hsiao, 1995 cited in Windyastuti, et al, 2005). As the number of cross section is more than time series (69 cross-section with 9 years), it is estimated to use Generalized Least Squares with

Employee Intensity =

cross-sectional weighting, to better account for the heteroscedasticity in the model. Generalized Least Square does not need the assumptions because it is a variable transformation of Ordinary Least Square in which Manurung, Manurung, & Saragih (2005, p.121-143): it is used to solve the problem of heteroscedasticity (inconstant variant) and to solve the problem of autocorrelation (the correlation disturbance between one period to another period). Each model in each period is also applied the heteroscedasticity corrected standard errors (White correction in addition to the GLS correction of the coefficient estimates themselves).

Model

The regression model is

SG&Ai,t NS,t NSi,t SG&Ai,t-1 NS i,t-1 NSi,t-1

SG&Ai,t : Selling, General, & Administrative cost of manufacture i period t

SG&Ai,t-1:Selling, General, & Administrative cost of manufacture i period t-1

NSi,t : Net sales of manufacture i at period t

NSi,t-1 : Net sales of manufacture i at period t-1

D : Dummy variable (value“1”when decrease activity, value “0” when increase activity)

ei,t : residual

Loglinear is used because this research uses categorical or nominal both the independent and dependent variables (Tansey, White, Long, & Smith, 1996).

Log = a

In order to test the degree of cost stickiness associated with adjustment cost, model 1 is extended to include an additional variable designed to model 2:

SG&Ai,t NSi,t NSi,t

SG&Ai,t-1 NSi,t-1 NSi,t-1

NSi,t Employee i,t

NSi,t-1 NS i,t-1

NSi,t Asset i,t

NSi,t-1 NSi,t-1

where Employee/NS : employee intensity ; Asset/NS : asset intensity Statistical Test - Hypothesis Test

Hypothesis 1

Therefore, the statistical hypothesis for H1 are:

Ho1a : a2 ≥ 0 ; Ha1a : a2 < 0 ; where

Ho1a : The selling, general and administrative cost stickiness did not happen before

economic crisis

Ha1a : The selling, general and administrative cost stickiness happened before

economic crisis

Ho1b : a2 ≤ 0 ; Ha1b : a2 > 0 ; where

Ho1b : The selling, general and administrative cost stickiness happened during

economic crisis

Ha1b : The selling, general and administrative cost stickiness is avoided during

economic crisis

Ho1c : a2 ≥ 0 ; Ha1c : a2 < 0 ; where

Log = a0 + a1 log + a2 Di,t* log

+ a_{3 Di,t*} log _* log

+ a

Ho1c : The selling, general and administrative cost stickiness did not happen after

economic crisis

Ha1c : The selling, general and administrative cost stickiness happened after economic

crisis Hypothesis 2

The higher employee intensity, the higher degree of SG&A cost stickiness. Therefore, the statistical hypothesis for H2 are:

Ho2a : a3 ≥ 0 ; Ha2a : a3 < 0 ; where

Ho2a : The degree of cost stickiness did not increase with the employee intensity of

manufacture before economic crisis period.

Ha2a : The degree of cost stickiness increased with the employee intensity of

manufacture before economic crisis period.

Ho2b : a3 ≤ 0 ; Ha2b : a3 > 0 ; where

Ho2b : The degree of cost stickiness increased with the employee intensity of

manufacture during economic crisis period.

Ha2b : The degree of cost stickiness did not increase with the employee intensity of

manufacture during economic crisis period.

Ho2c : a3 ≥ 0 ; Ha2c : a3 < 0 ; where

Ho2c : The degree of cost stickiness did not increase with the employee intensity of

manufacture after economic crisis period.

Ha2c : The degree of cost stickiness increased with the employee intensity of

Hypothesis 3

Therefore, the statistical hypothesis for H3 are:

Ho3a : a4 ≥ 0 ; Ha3a : a4 < 0 ; where

Ho3a : The degree of cost stickiness did not increase with the asset intensity of

manufacture before economic crisis period.

Ha3a : The degree of cost stickiness increased with the asset intensity of manufacture

before economic crisis period.

Ho3b : a4 ≤ 0 ; Ha3b : a4 > 0 ; where

Ho3b : The degree of cost stickiness increased with the asset intensity of manufacture

during economic crisis period.

Ha3b : The degree of cost stickiness did not increase with the asset intensity of

manufacture during economic crisis period.

Ho3c : a4 ≥ 0 ; Ha3c : a4 < 0 ; where

Ho3c : The degree of cost stickiness did not increase with the asset intensity of

manufacture after economic crisis period.

Ha3c : The degree of cost stickiness increased with the asset intensity of manufacture

after economic crisis period.

IV. RESULT Descriptive Statistics

Table 4.1. shows the number of kurtosis, and skewness to know the statistic description of data used. Log ratio of selling, general, and administrative cost (log y?)

and log ratio of net sales (log x1?) have leptokurtis (kurtosis > 3), which are 7.98 and 5.49. While, the skewness are 0.435 and 0.224. High kurtosis means that the data is concentrated in the middle of distribution or normal distributed. Meanwhile, the low skewness (close to zero) means there is no extreme data in the distribution. In conclusion, both of data is normal distributed.

Log employee intensity (log x2?) and log asset intensity (log x3?) have platikurtis (kurtosis < 3), which are 2.79 and 2.77. These numbers show that the data are not really concentrated in the middle of distribution. While, the skewness are -0.049 and 0.376. Low skewness means that there is no extreme data in the distribution. Therefore, both of data is normal distributed.

Regression Result A. Before Crisis

Coefficient Determination

As shown in table 4.2.Mode.1 for model 1, the R² value is 0,837. It means that 83.7 % of SG&A cost variability can be explained by the panel log linear regression model that proxies in the several independent variables (the ratio of net sales, decline net sales, employee intensity, and asset intensity) and the less 16.3% is explained by other variables. While, for model 2, the R² value is 0.856. It means that 85.6% of SG&A cost variability can be explained by the panel log linear regression model, and the less 14.4% is explained by other variables.

Simultaneous Regression Test ( F test)

From F test result in the table 4.2 (both of model 1 and model 2), it is shown that the p-value of both model 1 and model 2 are 0,000 in the  = 5%. It means that

independent variables consisting of the ratio of net sales, decline net sales, employee intensity, and asset intensity significantly influence dependent variable (variability of SG&A cost).

Regression Analysis

From the test result above we can arrange multi regression model as follow: a. Model 1 (the analysis of degree of SG&A cost stickiness)

SG&Ai,t NS,t NSi,t SG&Ai,t-1 NS i,t-1 NSi,t-1

b. Model 2 (the analysis of degree of S&A cost stickiness associated with adjustment cost)

SG&Ai,t NSi,t NSi,t

SG&Ai,t-1 NSi,t-1 NSi,t-1

NSi,t Employee i,t

NSi,t-1 NS i,t-1

NSi,t Asset i,t

NSi,t-1 NSi,t-1

Hypothesis Analysis

1. The SG&A cost stickiness happened before economic crisis(H1a)

This hypothesis is proven by seeing the regression result from model 1. Based on the theory, the SG&A cost stickiness is happened if a1 > 0, a2 < 0. From the regression result, it is shown that the value of a1 is 0.467 (positive and significant). It means that if the net sales increase for one percent, the selling, general and administrative cost will increase for 0.467 percent.

Log = 0.115 + 0.467log + 0.848 D* log + e i,t

Log = 0.108 + 0.49log -1.53 Di,t* log

-0.55 Di,t* log * log

While, a1+a2 is 1.315. It means that if the net sales decrease for one percent, the selling, general and administrative cost will decrease for 1.315 percent. The variability of SG&A cost in increase net sales is lesser than the variability of SG&A cost in decrease net sales (anti sticky). This result is contradicted with the theory. Therefore, the H1a is rejected; the selling, general and administrative cost stickiness did not happen before economic crisis.

2. The degree of cost stickiness increased with the employee intensity of manufacture before economic crisis period (H2a)

This hypothesis is proven by seeing the regression result from model 2. This hypothesis will be accepted if a3 < 0. From the regression result, it shows that a3 is significantly negative (-0.55). It means that before economic crisis period, when company decline its activity, chooses to delay adjustment cost and bear the maintenances cost.

3. The degree of cost stickiness increased with the asset intensity of manufacture before economic crisis period (H3a)

This hypothesis is proven by seeing the regression result from model 2. This hypothesis is proven by seeing the regression result from model 2. This hypothesis will be accepted if a4 < 0. From the regression result, it shows that a4 is significantly negative (-1.51). It means that before economic crisis period, when revenue decline, it chooses to delay adjustment cost. B. During Crisis

As shown in table 4.3 for model 1, the R² value is 0,857, it means that 85.7 % of SG&A cost variability can be explained by the panel log linear regression model that proxied in the several independent variables (the ratio of net sales, decline net sales, employee intensity, and asset intensity) and the less 14.3% is explained by other variables. While, for model 2, the R² value is 0.863. It means that 86.3% of SG&A cost variability can be explained by the panel log linear regression model, and the less 13.7% is explained by other variables.

Simultaneous Regression Test ( F test)

We can see the F test result in the table 4.3. (both of model 1 and model 2) that independent variables consisting of the ratio of net sales, decline net sales, employee intensity, and asset intensity significantly influence dependent variable (variability of SG&A cost).

Regression Analysis

From the test result above we can arrange multi regression model as follows: a. Model 1 (the analysis of degree of SG&A cost stickiness)

SG&Ai,t NS,t NSi,t SG&Ai,t-1 NS i,t-1 NSi,t-1

b. Model 2 (the analysis of degree of S&A cost stickiness associated with adjustment cost)

SG&Ai,t NSi,t NSi,t

SG&Ai,t-1 NSi,t-1 NSi,t-1

NSi,t Employee i,t

NSi,t-1 NS i,t-1

NSi,t Asset i,t

Log = 0.003 ₊ 0.77log - 0.36

D* log + e i,t

Log = 0.0007 + 0.78log -0.52 Di,t* log

-0.018 Di,t* log * log

NSi,t-1 NSi,t-1 Hypothesis Analysis

1. The SG&A cost stickiness is avoided during economic crisis (H1b)

This hypothesis will be accepted if a1 > 0, a2 > 0. From the regression result it is shown that the value of a1 is 0.77 (positive and significant). It means that if the net sales increase for one percent, the selling, general and administrative cost will increase for 0.77 percent. While, a1+a2 is 0.41. It means that if the net sales decrease for one percent, the selling, general and administrative cost will decrease for 0.41 percent. The variability of SG&A cost in increase net sales is higher than the variability of SG&A cost in decrease net sales (sticky). This result is contradicted with the theory. Therefore, the H1b is rejected; the SG&A cost stickiness happened during economic crisis.

2. The degree of cost stickiness did not increase with the employee intensity of manufacture during economic crisis period (H2b)

This hypothesis will be accepted if a3 > 0. From the regression result, it is shown that a3 is insignificantly negative (-0.018). The negative value means that stickiness cost is happened but do not have big influence to this stickiness cost. It is contradicted with the theory in which it is stated that stickiness is not happened during economic crisis period. It means that H2b is rejected; the degree of cost stickiness increased with the employee intensity of manufacture during economic crisis period.

3. The degree of cost stickiness did not increase with the asset intensity of manufacture during economic crisis period (H3b)

This hypothesis will be accepted if a4 > 0. From the regression result, it is shown that a4 is significantly positive (0.165). It means that during economic crisis period, company that has high asset intensity will choose to sell some company’s assets because company needs to solve the problem. Company needs to get cash in order to pay liabilities and develop the business. Therefore, the higher asset intensity, the lesser stickiness cost.

3. After Crisis

Coefficient Determination

As shown in the table 4.4 for model 1, the R² value is 0,675. It means that 67.5 % of SG&A cost variability can be explained by the panel log linear regression model that proxied in the several independent variables (the ratio of net sales, decline net sales, employee intensity, and asset intensity) and the less 32.5% is explained by other variables. While, for model 2, the R² value is 0.681. It means that 68.1% of SG&A cost variability can be explained by the panel log linear regression model, and the less 31.9% is explained by other variables.

Simultaneous Regression Test ( F test)

From F test result in the table 4.4 (both of model 1 and model 2). As shown table above, it can be explained that the p-value of both model 1 and model 2 are 0,000 in the  = 5%. It means that independent variables consisting of the ratio of net sales, decline

net sales, employee intensity, and asset intensity significantly influence dependent variable (variability of SG&A cost).

Regression Analysis

From the test result above we can arrange multi regression model as follow: a. Model 1 (the analysis of degree of SG&A cost stickiness)

SG&Ai,t NS,t NSi,t SG&Ai,t-1 NS i,t-1 NSi,t-1

b. Model 2 (the analysis of degree of S&A cost stickiness associated with adjustment cost)

SG&Ai,t NSi,t NSi,t

SG&Ai,t-1 NSi,t-1 NSi,t-1

NSi,t Employee i,t

NSi,t-1 NS i,t-1

NSi,t Asset i,t

NSi,t-1 NSi,t-1 Hypothesis Analysis

1.The SG&A cost stickiness happened after economic crisis(H1c)

This hypothesis will be accepted if a1 > 0, a2 < 0. From the regression result it is shown that the value of a1 is 0.29 (positive and significant). It means that if the net sales increase for one percent, the selling, general and administrative cost will increase for 0.29 percent. While, a1+a2 is 0.88. It means that if the net sales decrease for one percent, the selling, general and administrative cost will decrease for 0.88

Log = 0.096 ₊ 0.29log + 0.59

D* log + e i,t

Log = 0.096 + 0.289log +0.42 Di,t* log

-0.02 Di,t* log * log

percent. The variability of SG&A cost in increase net sales is lesser than the variability of SG&A cost in decrease net sales (sticky). This result is contradicted with the theory. Therefore, the H1b is rejected; the SG&A cost stickiness did not happen after economic crisis.

There is a better condition happened after crisis. Most companies have tried to make better condition. Therefore, here, the focus of company is back to get more benefit by controlling the costs. Management tries to push the operation cost in order to generate more profit. Because of this condition, the decrease of cost when net sales decrease is more than the increase cost when net sales increase.

2. The degree of cost stickiness increased with the employee intensity of manufacture after economic crisis period (H2c)

From the regression result, it is shown that a3 is insignificantly negative (-0.02). The negative value means that stickiness cost happened. Actually, the nature of cost behavior is appropriate with the theory in which the higher employee intensity, the higher stickiness cost. Nevertheless, from the insignificance, it means that management has done the adjustment cost of SG&A resource but still retain some employees (only in little number and not really influence the degree of stickiness cost).

3. The degree of cost stickiness increased with the asset intensity of manufacture after economic crisis period (H3c)

From the regression result, it is shown that a4 is significantly positive (0.157). It means that after economic crisis period, company that has high asset intensity will choose to sell some company’s assets. It means that H3c is rejected; the degree of cost stickiness did not increase with the asset intensity of manufacture after economic crisis period.

V. CONCLUSION & SUGESTION

There is a different degree of stickiness of selling, general and administrative on net sales in different economic condition. Before economic crisis, the variability of selling, general and administrative cost when net sales increase is lower than the variability of selling, general and administrative cost when net sales decrease, which mean stickiness does not happened. During economic crisis, the stickiness happened (hypothesis 1b is rejected). While, after economic crisis, the stickiness does not happened (hypothesis 1b is rejected). The variability of selling, general, and administrative cost after crisis is lower than before economic crisis.

The different degree of selling, general and administrative cost stickiness on net sales that is associated with employee intensity also happened in different economic condition. In each economic condition (before, during, and after economic crisis), when net sales decrease, the higher employee intensity, the higher degree of cost stickiness. Nevertheless, the degree of cost stickiness in before economic crisis is higher than the other periods.

The different degree of selling, general and administrative cost stickiness on net sales associated with asset intensity is also happened in different economic condition. Before economic crisis, the higher asset intensity, the higher degree of cost stickiness

(hypothesis 3a is accepted). While, during and after economic crisis, the higher asset intensity, the lesser cost stickiness. It happened since the management tries to solve the problem in that period. Nevertheless, there is a decreasing value after economic crisis.

Overall, researcher can conclude that the stickiness of selling, general and administrative cost on net sales is found in Indonesia’s manufacturing companies. Different economic condition influencing the degree of cost stickiness and it influenced the way management make decisions.

For further research, will be better if concerning specific sample (categorize firms based on their growth; low, middle, and high)., identify the degree of selling, general and administrative cost stickiness specifically, such as research and development, marketing, advertising and add other such as competition.

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net sales, employee intensity, and asset intensity significantly influence dependent variable (variability of SG&A cost).

Regression Analysis

From the test result above we can arrange multi regression model as follow: a. Model 1 (the analysis of degree of SG&A cost stickiness)

SG&Ai,t NS,t NSi,t SG&Ai,t-1 NS i,t-1 NSi,t-1

b. Model 2 (the analysis of degree of S&A cost stickiness associated with adjustment cost)

SG&Ai,t NSi,t NSi,t

SG&Ai,t-1 NSi,t-1 NSi,t-1

NSi,t Employee i,t

NSi,t-1 NS i,t-1

NSi,t Asset i,t

NSi,t-1 NSi,t-1

Hypothesis Analysis

1.The SG&A cost stickiness happened after economic crisis(H1c)

This hypothesis will be accepted if a1 > 0, a2 < 0. From the regression result it is shown that the value of a1 is 0.29 (positive and significant). It means that if the net sales increase for one percent, the selling, general and administrative cost will increase for 0.29 percent. While, a1+a2 is 0.88. It means that if the net sales decrease for one percent, the selling, general and administrative cost will decrease for 0.88

Log = 0.096 ₊ 0.29log + 0.59

D* log + e i,t

Log = 0.096 + 0.289log +0.42 Di,t* log

-0.02 Di,t* log * log

percent. The variability of SG&A cost in increase net sales is lesser than the variability of SG&A cost in decrease net sales (sticky). This result is contradicted with the theory. Therefore, the H1b is rejected; the SG&A cost stickiness did not happen after economic crisis.

There is a better condition happened after crisis. Most companies have tried to make better condition. Therefore, here, the focus of company is back to get more benefit by controlling the costs. Management tries to push the operation cost in order to generate more profit. Because of this condition, the decrease of cost when net sales decrease is more than the increase cost when net sales increase.

2. The degree of cost stickiness increased with the employee intensity of manufacture after economic crisis period (H2c)

From the regression result, it is shown that a3 is insignificantly

negative (-0.02). The negative value means that stickiness cost

happened. Actually, the nature of cost behavior is appropriate with the theory in which the higher employee intensity, the higher stickiness cost. Nevertheless, from the insignificance, it means that management has done the adjustment cost of SG&A resource but still retain some employees (only in little number and not really influence the degree of stickiness cost).

3. The degree of cost stickiness increased with the asset intensity of manufacture after economic crisis period (H3c)

From the regression result, it is shown that a4 is significantly

positive (0.157). It means that after economic crisis period, company

that has high asset intensity will choose to sell some company’s assets. It means that H3c is rejected; the degree of cost stickiness did not increase with the asset intensity of manufacture after economic crisis period.

V. CONCLUSION & SUGESTION

There is a different degree of stickiness of selling, general and administrative on net sales in different economic condition. Before economic crisis, the variability of selling, general and administrative cost when net sales increase is lower than the variability of selling, general and administrative cost when net sales decrease, which mean stickiness does not happened. During economic crisis, the stickiness happened (hypothesis 1b is rejected). While, after economic crisis, the stickiness does not happened (hypothesis 1b is rejected). The variability of selling, general, and administrative cost after crisis is lower than before economic crisis.

The different degree of selling, general and administrative cost stickiness on net sales that is associated with employee intensity also happened in different economic condition. In each economic condition (before, during, and after economic crisis), when net sales decrease, the higher employee intensity, the higher degree of cost stickiness. Nevertheless, the degree of cost stickiness in before economic crisis is higher than the other periods.

The different degree of selling, general and administrative cost stickiness on net sales associated with asset intensity is also happened in different economic condition. Before economic crisis, the higher asset intensity, the higher degree of cost stickiness

(hypothesis 3a is accepted). While, during and after economic crisis, the higher asset intensity, the lesser cost stickiness. It happened since the management tries to solve the problem in that period. Nevertheless, there is a decreasing value after economic crisis.

Overall, researcher can conclude that the stickiness of selling, general and administrative cost on net sales is found in Indonesia’s manufacturing companies. Different economic condition influencing the degree of cost stickiness and it influenced the way management make decisions.

For further research, will be better if concerning specific sample (categorize firms based on their growth; low, middle, and high)., identify the degree of selling, general and administrative cost stickiness specifically, such as research and development, marketing, advertising and add other such as competition.

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