Determinants of Control System Design in Divisionalized Firms

31 Pages Posted: 17 Feb 2004 Last revised: 8 Jan 2012

See all articles by Margaret A. Abernethy

Margaret A. Abernethy

University of Melbourne, Department of Accounting

Jan Bouwens

Amsterdam Business School

Laurence van Lent

Frankfurt School of Finance & Management gemeinn├╝tzige GmbH - Accounting Department

Date Written: July 1, 2004

Abstract

We investigate two determinants of two choices in the control system of divisionalized firms, namely decentralization and use of performance measures. The two determinants are those identified in the literature as important to control system design: (1) information asymmetries between corporate and divisional managers and (2) division interdependencies. We treat decentralization and performance measurement choices as endogenous variables and examine the inter-relation among these choices using a simultaneous equation model. Using data from 78 divisions our results indicate that decentralization is positively related to the level of information asymmetries and negatively to intra-firm interdependencies, while the use of performance measures is affected by the level of interdependencies among divisions within the firm, but not by information asymmetries. We find some evidence that decentralization choice and use of performance measures are complementary.

Keywords: Organization design, control system, interdependencies, information asymmetry, performance measures

JEL Classification: D23, D82, L22, M12, M40, M46, G34

Suggested Citation

Abernethy, Margaret A. and Bouwens, Jan and van Lent, Laurence, Determinants of Control System Design in Divisionalized Firms (July 1, 2004). Accounting Review, Vol. 79, No. 3, July 2004. Available at SSRN: https://ssrn.com/abstract=502422

Margaret A. Abernethy (Contact Author)

University of Melbourne, Department of Accounting ( email )

Victoria
Melbourne, Victoria 3010 3010
Australia
+61 3 8344 7655 (Phone)
+61 3 9349 2397 (Fax)

Jan Bouwens

Amsterdam Business School ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 5258740 (Phone)

Laurence Van Lent

Frankfurt School of Finance & Management gemeinn├╝tzige GmbH - Accounting Department ( email )

Adickesallee 32-34
Frankfurt, 60322
Germany
+4969154008531 (Phone)

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