We examine whether financially distressed firms (henceforth FD firms) adopt strategies for reducing discretionary expenses in order to solve their urgent issues related to immediate survival. We further analyze that their adoption behavior varies across types of CEO – owner managers vs. non-owner managers. In this study, education or training expenses, employee benefits, advertisement expenses, entertainment expenses, and research & development (henceforth R&D) expenditures are regarded as discretionary items which managers have discretions to disburse. From non-financial industry firms which have been consecutively listed in KOSPI and KOSDAQ from 2004 to 2010, we select 578 FD firms for analysis sample, and 1,546 non-FD firms for matching sample to compare with. Based on both samples, we have the empirical results as follows: First, discretionary expenses in sum have significantly decreased during the periods of financial distress. In particular, R&D expenditures which require high-risk and high-effort deem higher priority of reduction. Second, owner managers and non-owner managers show different behavior when they choose expense-reducing strategies. Owner managers rather increase R&D expenditures and decrease other expendable expenses, contrary to the behavior of non-owner managers. Third, FD firms which increase R&D expenditures show significantly better performance not only in their future operations (measured as return on assets) but also in the stock markets (measured as abnormal returns) compared to their counterparts. Thus the study provide useful information for internal managers who try to escape from financial distresses by showing that firms future performance significantly differs according to their strategies of reducing various discretionary expenses. It also confers a guideline on present and potential investors who make rational decisions to invest.