Uncertainty, MCS and Firm Performance: Towards an Integrated Business Risk Focused Framework

60 Pages Posted: 1 Apr 2008

See all articles by John H. Bradshaw

John H. Bradshaw

Victoria University of Wellington - School of Accounting and Commercial Law

Binh Bui

Victoria University of Wellington

Chris Hunt

Victoria University of Wellington

Date Written: 2007

Abstract

Uncertainty is the core variable in any contingency theoretical framework (Chapman, 1997; Donaldson, 2001). Many reviews however have claimed that the accounting literature lacks a comprehensive framework for analysis of the relationship between uncertainty and MCS (Otley, 1980; Dent, 1990; Chapman, 1997; Langfield-Smith, 1997, Chenhall, 2003). Central to this study is the specification of uncertainty as it has been applied in contingency-based MCS research. This study argues that uncertainty, whilst well specified in terms of sources and types, it is under (not sufficiently) specified in terms of determining the degrees of uncertainty. This limitation is argued to impact on the explanatory and predictive capacity of an MCS based contingency theory (Schoonhoven, 1981). A theoretical framework is developed drawing insights from Otley (1999) and Kaufman (1992) that adopts a business risk view of uncertainty to explain or predict MCS fit/misfit with firm objectives, strategies and operational activities. It is postulated that the degree of change in business risk will signal and influence the level of required changes in MCS design and/or use and go toward addressing the under-specification of degrees of uncertainty. The level, extent and form of actual changes are dependent on firm capacity, defined as the available and accessible human and non-human resources, to realize the required changes. In doing so, along with considering the equilibrium/fit issues raised by Hartman and Moers (1999), the framework provides a potential basis for reviewing the apparent consistencies of past MCS research, and for positioning those studies argued to be narrow and/or of incomparable research design (Otley, 1981; Chapman, 1997). More importantly, a methodology for identifying external and internal drivers of uncertainty from a business risk perspective is presented. Additionally, through such identification a potentially proactive signalling mechanism for changes to MCS design and/or use is provided. The analytical findings of this paper will be of interest to managers, industry professionals, practitioners and academics alike.

Keywords: Contingency, theoretical framework, MCS, business risk, uncertainty, resource constraints

JEL Classification: M40, M41, M46

Suggested Citation

Bradshaw, John H. and Bui, Binh and Hunt, Chris, Uncertainty, MCS and Firm Performance: Towards an Integrated Business Risk Focused Framework (2007). Available at SSRN: https://ssrn.com/abstract=1113960 or http://dx.doi.org/10.2139/ssrn.1113960

John H. Bradshaw (Contact Author)

Victoria University of Wellington - School of Accounting and Commercial Law ( email )

Faculty of Commerce and Administration
PO Box 600
Wellington
New Zealand

Binh Bui

Victoria University of Wellington ( email )

P.O. Box 600
Wellington, 6140
New Zealand
+64 4 463 5076 (Fax)

HOME PAGE: http://www.victoria.ac.nz/sacl/staff/binhbui.aspx

Chris Hunt

Victoria University of Wellington ( email )

P.O. Box 600
Wellington, 6140
New Zealand

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