Management Accounting Systems Adoption Decisions: Evidence and Performance Implications from Startup Companies

Stanford GSB Research Paper No. 1874

47 Pages Posted: 1 Dec 2004

See all articles by Tony Davila

Tony Davila

University of Navarra - IESE Business School

George Foster

Stanford Graduate School of Business

Date Written: October 2004

Abstract

Adopting management accounting systems are important events in the life of young and growing companies. Using a sample of 78 startup companies, we document cross-sectional differences in the adoption of operating budgets as well as seven other management accounting systems. We find that our proxies for agency costs, perceived benefits and costs, complexity of the firm, and culture explain cross-sectional differences in time-to-adoption of budgets. In particular, the presence of venture capital, CEO experience, firm size, and the culture of the organization are associated with this adoption decision. We further investigate the effect of hiring a financial manager as an endogenous variable. In the first stage of a two-stage model, we find that CEO total experience, the presence of venture capital funds, culture, and firm size are associated with cross-sectional variation in this hiring decision. When treating this decision as endogenous, time to hiring a financial manager is unrelated to operating budget adoption. The paper also examines the association between the time-to-adoption of operating budgets and company performance. We find a significant increase in the size of the company around the adoption of operating budgets; moreover faster adoption of operating budgets is associated with faster growing companies. We extend the findings to additional management accounting systems including: cash budgets, variance analysis, operating expense approval policies, capital expenditure approval policies, product profitability, customer profitability, and customer acquisition costs. The influence of industry choice (biotechnology, information technology, or non-tech) is examined in each stage of the research.

Keywords: Management accounting

JEL Classification: G34, G31, M40, M46

Suggested Citation

Davila, Antonio and Foster, George, Management Accounting Systems Adoption Decisions: Evidence and Performance Implications from Startup Companies (October 2004). Stanford GSB Research Paper No. 1874. Available at SSRN: https://ssrn.com/abstract=624670 or http://dx.doi.org/10.2139/ssrn.624670

Antonio Davila (Contact Author)

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)

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