Performance Consequences of the 'Fit' Between Management Accounting and Control Systems and the Environment: Evidence from Publicly-Listed Chinese Firms

56 Pages Posted: 1 Aug 2007 Last revised: 14 Jan 2008

See all articles by Neale Gilbert O'Connor

Neale Gilbert O'Connor

Hong Kong Baptist University; National University of Singapore

Sandra C. Vera-Munoz

University of Notre Dame - Department of Accountancy

Francis Chan

Hong Kong Shue Yan University

Date Written: November 2007

Abstract

We examine the performance consequences of the fit between environmental factors surrounding publicly-listed firms in China's emerging economy, and the firms' use of, and emphasis on management accounting and control systems (MCS): formal planning and budget controls, participative budgeting and performance evaluation, strategic performance measures and rewards, and socialization practices. We use archival data and survey data collected from senior- and middle-level managers in 158 publicly-listed Chinese firms. We find robust and consistent evidence that more extensive use of MCS is associated with higher concurrent and lagged accounting (return on assets) and market (market return) performance, and lower market beta. More importantly, we find robust and consistent evidence for the alignment hypothesis that less - but not more - extensive use of MCS than predicted by the firms' market competition and growth opportunities adversely affects performance, both subjective-based (assessed by senior-level managers) and accounting- and market-based. Our results suggest that a misfit between the firms' environmental characteristics and their MCS practices hurts the firms' performance. We discuss the implications of our findings, and provide some directions for future research.

Keywords: Management control systems, Strategic performance measures, Formal planning and budget control, Socialization, Growth opportunities, Accounting-based and market-based performance

JEL Classification: M40, M46

Suggested Citation

O'Connor, Neale Gilbert and Vera-Munoz, Sandra C. and Chan, Francis, Performance Consequences of the 'Fit' Between Management Accounting and Control Systems and the Environment: Evidence from Publicly-Listed Chinese Firms (November 2007). AAA 2008 MAS Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1003963 or http://dx.doi.org/10.2139/ssrn.1003963

Neale Gilbert O'Connor (Contact Author)

Hong Kong Baptist University ( email )

Kowloon Tong, Kowloon
Hong Kong
93045964 (Phone)

National University of Singapore ( email )

1 Business Link
Singapore, 117592
Singapore
65 6601 2993 (Phone)

Sandra C. Vera-Munoz

University of Notre Dame - Department of Accountancy ( email )

248 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-9041 (Phone)
574-631-5255 (Fax)

Francis Chan

Hong Kong Shue Yan University ( email )

10 Wai Tsui Crescent
Braemar Hill Road
North Point
Hong Kong

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