Financial restatements have been shown to be associated with management reputation loss and turnover. The literature on cost stickiness has shown that cost stickiness has been associated with both management optimism as well as agency and behavioral issues such as empire building. In this paper, we investigate the relationship between Selling, General, and Administrative (SG&A) cost stickiness and financial restatements. We show that SG&A cost stickiness decreased significantly post financial restatements, and the decrease was significantly more in the case of restatements associated with fraud than those not associated with fraud. Our results support the following: (a) financial restatements act as a disciplining device for possible managerial excesses, and (b) firms working harder to reduce SG&A cost stickiness when financial restatements were associated with fraud than when they were not associated with fraud.

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