The Effect of Managers’ Delta and Vega on the Asymmetric Cost Behavior of Companies

This paper examines the impact of managers’ stock incentives on changes in sales and selling, general, and administrative (SG A) costs, which can help determine whether SG A costs are sticky or non-sticky. This study employs two criteria for assessing managers’ incentives: managers’ wealth sensitivity to stock price changes (Delta) and managers’ wealth sensitivity to stock returns (Vega). The first hypothesis posits that Delta influences cost stickiness, leading to a more significant cost increase in response to rising sales compared to decreasing sales. Conversely, the second hypothesis suggests that Vega directly affects non-sticky costs, whereby costs increase less in response to growing sales than decreasing ones. The statistical sample for this study comprises 138 companies from 2008 to 2023. A panel regression model was utilized to test the hypotheses, revealing that Delta significantly positively affects cost stickiness, while Vega has a significant negative effect.