The Valuation of Management Control Systems in Start-Up Companies: International Field-Based Evidence

50 Pages Posted: 11 Sep 2014

See all articles by Tony Davila

Tony Davila

University of Navarra - IESE Business School

George Foster

Stanford Graduate School of Business

Ning Jia

Tsinghua University - School of Economics & Management

Date Written: September 11, 2014

Abstract

The question of whether management control systems (MCS) adopted by start-up companies are valuable is examined. We investigate an international sample of start-ups, including their detailed MCS adoptions and financing histories. We find that higher MCS intensity, which is measured as the number of systems adopted at year-end immediately prior to the financing round, has a positive impact on company value. We also find that equity financiers value MCS more than do debt financiers. The valuation implication is more pronounced for start-up companies operating in highly competitive environments and with higher growth. We also document a positive relation between change in MCS intensity and change in firm value. Additional analyses show that higher company valuation is found for companies that align their MCS choices with their strategic positioning. In particular, systems that implement strategy are perceived to be more important and valuable than others. Overall, our paper provides new evidence for the debate concerning the merits of formal control in start-up companies.

Keywords: Valuation; Management control systems; Start-ups; Competition; Strategy

JEL Classification: M13; M41; G32

Suggested Citation

Davila, Antonio and Foster, George and Jia, Ning, The Valuation of Management Control Systems in Start-Up Companies: International Field-Based Evidence (September 11, 2014). European Accounting Review Forthcoming, Available at SSRN: https://ssrn.com/abstract=2494756

Antonio Davila

University of Navarra - IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

George Foster

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-2812 (Phone)
650-725-7979 (Fax)

Ning Jia (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

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