5. Conclusion
The business community is paying greater attention to stakeholders (Hillman et al. 2009; Wang 2013). However, the implications of stakeholder orientation for internal management practices remain largely unexplored. Building upon both adjustment cost theory and agency theory, we predict that SG&A cost stickiness increases with customer and employee orientation. Using a sample of 19,783 firm-years between 1991 and 2013, we find results consistent with these predictions. Furthermore, SG&A cost stickiness increases with customer orientation for firms where SG&A costs create greater future value, firms with high growth potential, and firms with strong corporate governance. Conversely, SG&A cost stickiness increases with employee orientation for firms where SG&A costs create low future value, firms with low growth potential, and firms with weak corporate governance. In sum, adjustment cost theory better explains the effect of customer orientation on SG&A cost stickiness, whereas agency theory helps to explain the association between employee orientation and SG&A cost stickiness. We provide initial evidence that stakeholder orientation affects SG&A capacity adjustment decisions and SG&A cost stickiness. We base our predictions on adjustment cost theory and agency theory, which also helps to differentiate between efficient and excessive SG&A cost stickiness (Banker and Byzalov 2014). Our findings add to the ongoing discussions among managers and academics by showing the diverging implications of stakeholder orientation for capacity management. By examining customer and employee orientation separately, we provide some evidence that managerial commitment to customers is more consistent with corporate efficiency considerations (i.e., adjustment costs), whereas corporate orientation toward employees helps to rationalize managers’ agency incentives to delay or refrain from cutting idle resources.
