Agency Costs, Ownership Structure, and Cost Stickiness: Implications for Sustainable Corporate Governance

In the modern corporation, understanding sustainable cost management practices is essential for promoting economic resilience and resource efficiency. This study investigates how ownership structures influence the behavior of selling, and general and administrative (SG&A) costs during periods of sales fluctuations in South Korean firms, with particular attention to Chaebols. Drawing upon agency theory and corporate governance perspectives, we examine whether proxies for agency costs, namely, free cash flow, asset utilization ratios, and operating expense ratios, explain variations in SG&A cost responses to changes in revenue. Utilizing a panel dataset of 4279 firm-year observations from KOSPI-listed companies over the period 2011–2021, we employ Pooled Ordinary Least Squares (OLS), Fixed Effects, Random Effects, and Generalized Method of Moments (GMM) estimations to model SG&A cost behavior. The analysis incorporates regression-based interaction terms that capture asymmetric cost adjustments during sales declines, commonly referred to as cost stickiness. Our findings indicate that firms with concentrated ownership, such as Chaebols, exhibit significantly lower SG&A cost stickiness, reflecting stronger financial discipline and more efficient resource allocation. In contrast, firms with dispersed ownership demonstrate more pronounced cost stickiness, consistent with governance frictions and managerial discretion. These results emphasize the moderating role of ownership structure in cost behavior and highlight its implications for sustainable corporate governance. Our study contributes to the literature on cost management and financial sustainability by offering empirical insights from a distinctive institutional setting. Policy recommendations include enhancing internal controls, promoting transparent cost practices, and encouraging shareholder oversight to reinforce long-term efficiency.