Essays on innovation and cost behavior

Abstract

For a company to maintain and develop competitiveness, one must establish superior strategies to competitors and respond to environmental changes. Innovation is a typical strategy in securing competitive advantage and is essential for a company’s sustainability. There have been various studies on innovation, but despite its quantitative vastness, innovation in accounting is still an unfamiliar concept because of its difficulty in clear valuation. The existing research in the field of management accounting has been conducted around the case studies on innovative techniques or the discussion on the concept of innovation, and the topic is also limited to accounting and financial performance through corporate innovation. Therefore, it is necessary to discuss how innovations occurring in many companies will be revealed from the accounting perspective. This dissertation consists of studies to identify the strategic decision-making of enterprises in the execution and investment of innovation. This study consists of two chapters related to the cost behavior of an enterprise. The first chapter addresses innovation in terms of corporate change, and the second chapter highlights the aspects of Research and Development (R&D) investment underlying corporate innovation. The first essay covers the cost behavior of innovating companies. From the manager's rational decision-making point of view, the cost stickiness arises from holding the excess resource in reaction to the sales reduction, which may be applied as part of the information on future expected returns. This study confirmed that innovation in the strategic decision-making of enterprises changes the cost behavior of labor cost and SG&A. As a result of the analysis using the KIS, the companies carrying out the innovation showed sticky cost behavior compared to those that did not. In particular, resource reserves have occurred in a pessimistic situation where sales have declined, a result of confirming that the company's innovation strategy is primarily aimed at tackling the negative situation of the company. In addition, the study has found that managers' decision-making about resource reserves depends on the purpose of each type of innovation. Companies seeking product innovation inject more resources even if sales decrease, but strategically reduce resources on other changes. This study proposes an extension to a model that considers the strategic decision-making of the company, including innovation, in addition to the characteristics of the company's managers among cost management studies. The second essay examines the changes in corporate cost behaviors according to corporate R&D investment and disclosure policy. R&D is an essential activity in creating the company's competitive advantage, but there is uncertainty in its performance. Managers make decisions about the resources to invest in R&D based on the company's strategic objectives. This study used Anderson's model to confirm that companies with large R&D investments increase their resource retention even when sales decrease. In addition, as a result of analyzing the capitalized cost and expensed cost separately when accounting for R&D expenses, it was confirmed that the effect of these selections on the cost behavior of SG&A was different. The results of this study indicate that R&D investment is closely related to the increase in adjustment costs, suggesting that managers are forming positive expectations such as improved sales levels due to R&D performance. Moreover, it was confirmed that this trend was clearly revealed only when the manager recognized R&D expenditure as capitalized expenditure, and thus it contained different information on the corporate strategy according to the disclosure policy of R&D investment. This dissertation suggests that strategic decision-making regarding the innovation of the firm is revealed through cost behavior. This extended the literature by treating the concept of innovation, which was limited to innovation performance, as part of the firm strategy. In particular, the first essay found that different resource allocation could occur depending on the type of innovation, and the second essay uncovered that the capitalized disclosure of R&D expenditure reflected the willingness of managers to invest. This suggests that the strategic choices of managers, including innovation, should be considered important in interpreting cost information.