Relationship Between Contextual Variables and Management Control Systems: Experience with Indonesian Hospitality Industry

Abstract

Information plays key role in managing an organization. Accounting information significantly contributes to the effective functioning of management process, and the domain of management accounting information includes management control. This research attempts to extend the study of Chenhall (2003), Gul (1991), and Fauzi (1999), at a set of hypotheses, on the effect of contextual variables on the design of Management Control System (MCS). This study tests the effect of each contextual variable on the relationship between MCS design and performance by using survey instruments. The study also fills the gap in the predictors of MCS design and the contingency-based studies mapped by Fisher (1995). Results of this study agreed to different findings of prior studies. However, a number of hypotheses are also rejected. This study demonstrates that contextual variables contribute to the design of MCS. It is also proved that business strategy and environments can play a moderate role on the interaction between MCS and corporate financial performance.

Keywords: Contextual variables, Management control system, corporate performance, Indonesia

JEL Classification: M40, M41, M46, G34