Year and deleted observations if sga costs exceeded

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Unformatted text preview: reened the data for missing observations of either SG&A costs or sales revenue in the current or preceding year and deleted observations if SG&A costs exceeded sales revenue. The total number of remaining observations is 64,663 for 7,629 firms, an average of about 8.5 observations per firm. Panel A of table 1 provides descriptive information about annual revenues and SG&A costs for the complete 20-year sample. The mean value of SG&A costs as a percentage of sales revenue is 26.41% (median = 22.62%, standard deviation = 17.79%). Panel B of table 1 provides information about the frequency of firm-periods when revenue fell (relative to the previous period) and firm-periods when SG&A costs fell. Revenue fell in 27.01% of the annual firm-periods in the sample and SG&A costs fell in 24.98% of the firm-periods. The mean value of revenue decreases is 17.45% (median value = 10.99%, standard deviation = 18.64%) and the mean value of decreases in SG&A costs is 15.67% (median value = 10.07%, standard deviation = 16.40%). 3.2 ESTIMATION RESULTS We estimated the model using ordinary least squares (OLS). We eliminated extreme observations from the estimation by excluding an observation if the value of any variable was in the top or bottom 0.5% of its distribution (Chen and Dixon [1972]), resulting in a reduction of 705 observations to 63,958 observations. White’s [1980] test indicated that heteroskedasticity was not a problem for our loglinear model. We applied the Belsley, Kuh, and Welsch [1980] diagnostic to test for multicollinearity in the pooled estimation. None of the condition indexes exceeded 5, well below the suggested cutoffs. We evaluated serial correlation in the data on a firm-by-firm basis. The Durbin-Watson [1951] test statistic revealed significant (at the 5% level) positive autocorrelation for less than 3% of the firms, indicating that it was not necessary to correct for serial correlation in the data. 4 Noreen and Soderstrom [1997] specify a similar model and conduct a test for asymmetric cost behavior with respect to activity increases and decreases. Using data for hospital overhead costs, their results provided weak evidence of asymmetric behavior (negative signs on their interaction term for activity decreases for 12 of 16 accounts, but overall not significantly different from zero). 54 M. C. ANDERSON, R. D. BANKER, AND S. N. JANAKIRAMAN TABLE 1 Summary Statistics All the reported numbers are in millions of dollars. The distribution of sales revenue and SG&A costs is for a population of 64,663 firm-year observations from 7,629 firms in the 1999 Compustat data set that satisfy the following selection criteria: no missing observations of sales revenue (annual Compustat item #12) for the current and preceding year, no missing observations of SG&A costs (item #189) for the current and preceding year, and no firm-years in which SG&A costs exceeded sales revenue. In panel B, observations with a...
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This document was uploaded on 09/24/2013.

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