The role of founder decision rights and operating and disclosure mechanisms in firm value creation

We find that founder firms use operating performance and transparency as mechanisms more effectively than non-founder firms for creating value. The greater effectiveness comes from the founders choosing their inputs strategically. Specifically, they increase the gross margin in differentiated firms that demand organizational agility and they increase asset usage efficiency in cost‑leadership firms. Founder firms exhibit higher transparency than non-founder firms in differentiated and cost leadership firms. The improvements in operational performance, transparency, and value are all greater when founders have more decision rights. Our results are consistent with the interpretation that influential founders use organizational performance and transparency to increase the firm value more effectively than managers of similar non-founder firms by providing a unified vision and a single point of control.     

Management control systems and strategy: A resource-based perspective

The aim of this study is to examine, from a resource-based perspective, the relationships between the use of management control systems (MCS) and organizational capabilities. More specifically, the study focuses on the diagnostic and interactive uses of one important aspect of MCS, namely performance measurement systems (PMS), and four capabilities leading to strategic choices (i.e., market orientation, entrepreneurship, innovativeness, and organizational learning). Three research questions are investigated in this study: (i) to what extent do the diagnostic and interactive uses of MCS contribute specifically to the creation and maintenance of capabilities leading to strategic choices? (ii) To what extent do the diagnostic and interactive uses of MCS act in combination to produce dynamic tension which contributes to the creation and maintenance of these capabilities? (iii) To what extent does the use of MCS contribute to organizational performance? The results suggest that an interactive use of PMS fosters the four capabilities by focusing organizational attention on strategic priorities and stimulating dialogue. Also, by creating constraints to ensure compliance with orders, the diagnostic use of PMS exerts negative pressure on these capabilities. Furthermore, some evidence suggests the influence of dynamic tension resulting from the balanced use of PMS in a diagnostic and interactive fashion on capabilities and performance.     

The effect of comprehensive performance measurement systems on role clarity,psychological empowerment and managerial performance

This study examines how comprehensive performance measurement systems (PMS) affect managerial performance. It is proposed that the effect of comprehensive PMS on managerial performance is indirect through the mediating variables of role clarity and psychological empowerment. Data collected from a survey of 83 strategic business unit managers are used to test the model. Results from a structural model tested using Partial Least Squares regression indicate that comprehensive PMS is indirectly related to managerial performance through the intervening variables of role clarity and psychological empowerment. This result highlights the role of cognitive and motivational mechanisms in explaining the effect of management accounting systems on managerial performance. In particular, the results indicate that comprehensive PMS influences managers’ cognition and motivation, which, in turn, influence managerial performance.     

Technological change and the growing inequality in managerial compensation

Three of the most fundamental changes in US corporations since the early 1970s have been (1) the increased importance of organizational capital in production, (2) the increase in managerial income inequality and pay-performance sensitivity, and (3) the secular decrease in labor market reallocation. Our paper develops a simple explanation for these changes: a shift in the composition of productivity growth away from vintage-specific to general growth. This shift has stimulated the accumulation of organizational capital in existing firms and reduced the need for reallocating workers to new firms. We characterize the optimal managerial compensation contract when firms accumulate organizational capital but risk-averse managers cannot commit to staying with the firm. A calibrated version of the model reproduces the increase in managerial compensation inequality and the increased sensitivity of pay to performance in the data over the last three decades. This increased sensitivity of compensation to performance provides large, successful firms with the glue to retain their managers and the organizational capital embedded in them.     

The use of performance measurement systems in the public sector: Effects on performance

We study the use of performance measurement systems in the public sector. We hypothesize that the way in which these systems are being used affects organizational performance, and that these performance effects depend on contractibility. Contractibility encompasses clarity of goals, the ability to select undistorted performance metrics, and the degree to which managers know and control the transformation process. We expect that public sector organizations that use their performance measurement systems in ways that match the characteristics of their activities outperform those that fail to achieve such fit. We test our hypotheses using survey data from 101 public sector organizations. Our findings indicate that contractibility moderates the relationship between the incentive-oriented use of the performance measurement system and performance. Using the performance measurement system for incentive purposes negatively influences organizational performance, but this effect is less severe when contractibility is high. We also find that an exploratory use of the performance measurement system tends to enhance performance; this positive effect is independent of the level of contractibility. The effectiveness of the introduction of performance measurement systems in public sector organizations thus depends both on contractibility and on how the system is being used by managers. These findings have important implications, both for practice and for public policy.     

Does the Interactive Use of Headquarter Performance Measurement Systems in Foreign Subsidiaries Endanger the Potential to Profit from Local Relationships?

Managing distant subsidiaries is a challenge for headquarters of multinational companies. Performance measurement systems (PMS) can assist in this task. Taking a business network perspective, we study the moderating effect of the interactive use of PMS implemented by headquarters at subsidiaries on the relationship between subsidiary embeddedness and subsidiary performance. We test our hypotheses using survey data from 110 subsidiary managers in China. The results suggest that the multinational network surrounding the subsidiary affects overall headquarter control possibilities. Specifically, while interactive use may be helpful in situations of low local embeddedness of the subsidiary, it seems to have negative side effects on the subsidiaries’ ability to benefit from high local embeddedness.     

Synthesizing enterprise data to strategically align performance: The intentionality of strategy surrogation

Strategic performance measurement systems (SPMS) are employed by senior management as a means of translating strategy into performance measures. Recent research suggests that this translation can lead managers to focus on personal performance measures as opposed to overall organizational strategy—a phenomenon referred to as strategy surrogation. Emerging technologies are increasingly used to operationalize SPMS via smart phone/tablet/laptop formats that inherently promote the use of small subsets of performance measures and have the potential to exacerbate strategy surrogation effects. This study explores executive managers' motivations in deploying dashboards and the resulting effect on operational managers' focus on associated performance measures. An exploratory cross-sectional field study is conducted with 27 executive to mid-level managers to establish a theoretical model explaining how and why organizations deploy dashboards and why managers use dashboards to facilitate their activities and decisions. Despite concerns over the propensity of managers to focus on performance measures and lose sight of strategic objectives (i.e. strategy surrogation), the interview data indicate that executive management intentionally designs dashboards to achieve strategy surrogation. The impact of this intentional surrogation appears to arise through operational managers' beliefs that dashboard measures align with organizational strategy and lead to improved managerial and organizational performance. However, this relationship between perceived alignment of performance measures and managerial and organizational performance is mediated by dashboard quality and information quality. These findings have important implications as the effects of SPMS on strategy surrogation are further explored by researchers, and as system designers consider the side effects of emerging technologies on effective strategic performance measurement.     

Relative performance evaluation and executive compensation: Evidence from Chinese listed companies

This paper focuses on the effect of relative performance evaluation (RPE) on top managers’ compensation in Chinese public firms. Overall, we find no evidence of an RPE effect or any asymmetry in firms’ use of RPE. The results obtained using Albuquerque’s (2009) method are similar to those obtained using traditional methods. In addition, we find that RPE is used more in non-SOEs than in SOEs. This may be due to the regulation of compensation, various forms of incentives and the multiple tasks of managers in SOEs.     

How and when do firms translate slack into better performance?

Many studies have tested the impact of organizational slack on performance, and yet little is known about how managers make use of slack, and in what circumstances it is most beneficial. We show that the managers of firms with higher levels of slack tend to overinvest, which will have a negative impact on performance, but at the same time they may innovate, which will subsequently have a positive impact. Our results also indicates slack is more beneficial when the firm has many profitable investment opportunities. We show that different types of slack influence performance differently, the total effect of available slack on performance being positive, whereas that of recoverable slack on performance being negative.     

Corporate governance in South Korea: the chaebol experience

Utilizing a large sample of South Korean firms, this paper explores the impact of corporate governance in an emerging market country dominated by a few large business groups. Firms affiliated with the top five groups (chaebol) exhibit significantly lower performance and significantly higher sales growth relative to other firms. Furthermore, top executive turnover is unrelated to performance for top chaebol firms, indicating a breakdown of internal corporate governance for the largest business groups. Internal corporate governance appears much more effective for firms unrelated to the top chaebol as managers at poorly performing firms are significantly more likely to lose their job. These results imply that the lack of properly functioning internal corporate governance among the top chaebol, which dominate the Korean economy, may have increased the severity of the recent financial crisis.     

The decision-influencing use of performance measurement systems in relationships between headquarters and subsidiaries

Although theoretical frameworks assume that performance measurement systems (PMS) can be employed for different uses, there is a lack of prior empirical research examining the use of PMS. In addition, recent International Business studies reveal many unresolved issues about the use of PMS to manage relationships between headquarters and subsidiaries. After summarizing the evolution of the use of PMS over three International Business eras, we focus on the decision-influencing use of PMS, operationalized as the influence of the PMS implemented by headquarters on subsidiaries’ decisions. Based on International Business literature and Management Accounting research, we hypothesize that the subsidiary participation in PMS design, measurement diversity in PMS structure, the linking of PMS to reward, as well as headquarters’ national culture, subsidiary size, and global pressure affect the influence of PMS on subsidiaries’ decisions. We collected data through questionnaires emailed to 100 subsidiaries. Findings show that PMS have a greater influence on decisions in cases of higher subsidiary's participation in PMS design, headquarters’ cultural tolerance for uncertainty, subsidiary size, and global pressure. Contrary to what is contended by advocates of multidimensional approaches to PMS, measurement diversity and the linking of PMS to reward mechanisms do not have a significant impact on the decision-influencing use. We discuss the empirical evidence providing qualitative arguments derived from a focus group, which reveals the existence of a PMS decoupling and helped us to describe four situations with different levels of decision-influencing use of PMS and different economic performance results. The presented quantitative and qualitative empirical evidence offers several insights for research on PMS within multinational companies.     

Justifying top management pay in a transitional economy

We investigate some aspects of top management pay in China's listed firms. We find positive pay and performance sensitivities and elasticities for top executives. In terms of magnitude, these sensitivities are similar to those reported in U.S. firms during the 1970s. However, the pay and performance relation is slightly weaker for firms located in less developed provinces. We also find that the pay disparities between top managers and employees are positively related to a firm's performance. Thus, it appears that any deviation away from a manager-worker compensation norm has to be justified by superior firm performance. In additional analyses, we find that managers' perquisites are not related to performance.     

Implementing performance measurement innovations: evidence from government

Using data from a government-wide survey administered by the US General Accounting Office, we examine some of the factors influencing the development, use, and perceived benefits of results-oriented performance measures in government activities. We find that organizational factors such as top management commitment to the use of performance information, decision-making authority, and training in performance measurement techniques have a significant positive influence on measurement system development and use. We also find that technical issues, such as information system problems and difficulties selecting and interpreting appropriate performance metrics in hard-to-measure activities, play an important role in system implementation and use. The extent of performance measurement and accountability are positively associated with greater use of performance information for various purposes. However, we find relatively little evidence that the perceived benefits from recent mandated performance measurement initiatives in the US government increase with greater measurement and accountability. Finally, we provide exploratory evidence that some of the technical and organizational factors interact to influence measurement system implementation and outcomes, often in a complex manner.     

Performance measurement systems in higher education: How levers of control reveal the ambiguities of reforms

This paper focuses on the introduction of new performance measurement system (PMS) for measuring teaching performance in Universities. The adoption of such PMS should prompt significant changes in existing control processes, but the goals of reform do not automatically translate into the desired organisational responses. Given the impact of PMS on management controls, the nature of such ambiguities may be better investigated using a framework that allows management control systems (MCS) to be taken in account. This paper investigates key actors' perceptions regarding the introduction of PMS through the lens of the levers of control (Simons, 1995, 2000). A qualitative analysis is conducted on interviews held with Italian university teaching managers and heads of programmes to examine the ambiguities arising from the implementation of a PMS.Several ambiguities emerge, both within and between the levers analysed, suggesting some reasons for the (partial) ineffectiveness of PMS reforms. In particular, the belief systems lever is crucial in making reforms acceptable, bureaucratic procedures are important in the diagnostic control systems lever, and performance indicators operate as a boundary system lever. Our findings show that administrative and academic actors perceive the interactive control capacity of PMS differently.     

New development: Integrating risk management in management control systems—lessons for public sector managers

Exploring multiple dimensions of management control systems (MCS), this article proposes a new framework to integrate risk management with strategy, MCS and performance measurement systems (PMS). Considering the public sector as a focal point, the article points to some enterprise risk management (ERM) issues and argues that ERM-enabled MCS has potential to improve PMS and strategic decision-making, leading to a more proactive risk management framework and a culture that promotes performance driven accountability. Consequently, the article calls for further research towards solving the public sector’s risk management problems, motivating its managers to adopt best practices, and stimulating suitable policy developments.     

Institutional Logics and Responses to Performance Measurement Systems

Abstract: This comparative study analyzes institutional logics and categorizes organizational responses to performance measurement systems (PMSs) in two Finnish cities. We refine the typology of organizational responses and suggest how the choice of response depends on the institutionalized logic in the public sector accounting context (cf. Oliver, 1991 ). Further, we discuss and refine the types of successful co‐operation under competing institutional logics (cf. Reay and Hinings, 2009 ). Our study also sheds light on practice variation in public sector accounting such as how and why PMS use materializes in different forms in units with different institutional logics.     

Customer-focused manufacturing strategy and the use of operations-based non-financial performance measures: A research note

This note follows and extends Abernethy and Lillis (Accounting, Organizations and Society, 1995) by examining: (i) whether firms which maintain a customer-focused manufacturing strategy also maintain an emphasis on non-financial (operations-based) measures in their performance measurement systems; and (ii) whether such an emphasis is associated with enhanced performance for those firms. Data are obtained via questionnaire survey of a random sample of manufacturing firms in Sydney, Australia. Support is found for the hypothesized association between customer-focus strategy and the use of non-financial performance measures (and hence for Abernethy and Lillis) but not for the link to organizational performance.     

Contabilidad de gestión para controlar o coordinar en entornos turbulentos: su impacto en el desempeño organizacional

This study explores management accounting systems’ (MAS) effect on organizational performance in turbulent environments. The information generated by MAS has a different impact on organizational performance depending on its main purpose of use (control or coordination) according to transaction costs theory. Data from a survey with 42 complete answers from medium sized organizations operating in the province of Cordoba (Argentina) show that MAS positively impact organizational performance in turbulent environments if used to coordinate up to a certain level. Their purpose of use is better modeled as another independent variable but not as a mediator between external factors and organizational performance. Previous case studies suggested that MAS's purpose of use was mediating between external factors and organizational performance, but this study shows that in turbulent environments the idea is not valid as managers’ decisions do not affect uncontrollable external factors (market and technology). Performance in medium sized organizations operating in Latin America improves if MAS are used to coordinate, while limiting their use for control purposes to certain and definite tasks such as cost measurement, compensation and incentive mechanisms.     

Organizational change in an Australian university: Responses to a research assessment exercise

The objective of this paper is to explore the way internal organizational control processes are changed in response to external demands. It does this by investigating the organizational change undertaken by an Australian university in anticipation of, and in response to, an externally imposed research assessment exercise (RAE), specifically focusing on the university's internal research-related performance management system (PMS) and its impact on academics. It adopts a case study method, using data from publicly available documents, interviews with senior management, and a survey administered to academics. The data is interpreted and analyzed using Broadbent and Laughlin's organizational change model. The findings reveal that RAE was anticipated with the appointment of new senior leadership, a new vision, restructure of faculties and departments, and changes to the research PMS. The changes to both the university's mission (significant and longlasting, second order change) and its internal systems (less significant, first order change) are evident. In the context of the global proliferation of PMSs in the higher education sector, this paper contributes to the literature on PMSs, indicating its relevance to universities. Its empirics provide useful insights for university managers and regulators and, more broadly, the paper contributes to our understanding of organizational change.     

Integration,organizational processes,and allocation of resources

Does the level of integration of a firm affect the quality of information available to its top decision makers responsible for allocating resources? Motivated by the pervasiveness of specific knowledge in large multi-division firms, I develop a model of internal competition for corporate resources among specialist managers and show that: (i) managers of integrated firms exaggerate the payoffs of their projects to obtain resources despite potentially adverse career consequences, and (ii) the exaggeration problem worsens with increased integration and reduces the allocative efficiency of an integrated firm. Control rights based on asset ownership enable the firm to set “the rules of the game” and improve managerial behavior through organizational processes such as rigid capital budgets, job rotation, centralization and hierarchies.