The impact of firm characteristics on management accounting practices: A UK-based empirical analysis

Abstract

There has been sustained interest in explaining why firms adopt different management accounting practices. This paper applies contingency theory to respond empirically to calls by Gerdin (2005), Tillema (2005) and Chenhall (2007) to increase understanding of factors that explain management accounting sophistication.

Contingency Factors Influencing MAS Design of Manufacturing Firms in Malaysia

“…Adbel-Kader and Luther (2008) and Hoque (2011) have provided empirical results to show that decentralization has a positive relationship with the adoption of sophisticated MAS design in UK and Australia. Chenhall and Morris (1986) suggested that more sophisticated MAS is needed in a decentralized structure in order to ensure all planning, controlling and decision making activities at all levels are exerted with sufficient accurate information.…”

“…Besides, Adbel-Kader and Luther (2008) noted that firms decentralized as environmental uncertainty increases due to international expansion. Thus, as firms expands, environmental uncertainty increases and this causes firms to decentralize and a more sophisticated accounting system is needed as to ensure that proper cost and control measures are in place in order to obtain relevant information for the top managements to make strategic decisions.…”

“…Stergiou, Ashraf and Uddin (2013) noted that the structure of the organization influences the amount of control that a manager has in order to extract effort from the labor force. Thus, in order to make strategic decisions, the MAS design is contingent on the organizational structure that firm adopts as this could affect the efficiency of the work flow, the information flow and the control system (Otley 1980;Chenhall 2003;Adbel-Kader & Luther 2008;Hoque 2011). For the purpose of this study, the definition of decentralization will be adopted from Lawrence and Lorsch (1967), as cited in Chenhall 2003), whereby the organization is differentiated in terms of the decision making autonomy given to sub-unit managers and one of the mechanisms used is through decentralization.…”

“…However, according to Tillema (2005), sophisticated MAS might not guarantee enhanced performance unless the MAS design could provide the needed information that adds value to the business. As a result, past studies have indicated that the appropriateness of a MAS design is often contingent on the business context and the environment that the company operated in (Gerdin 2005;Tillema 2005;Adbel Kader & Luther 2008;Zakaria 2015). This paper extends the empirical research on MAS design by investigating whether the adoption of sophisticated MAS is significantly influenced by decentralization, the changes in the adoption of advanced manufacturing technology and the intensity of market competition.…”

“…This paper extends the empirical research on MAS design by investigating whether the adoption of sophisticated MAS is significantly influenced by decentralization, the changes in the adoption of advanced manufacturing technology and the intensity of market competition. These variables are identified as the contingency factors, indicating that these factors are able to affect a manufacturing firm's MAS design (Adbel-Kader & Luther 2008) especially in a developing nation such as Malaysia. Managers would require more relevant information to make decisions as the business environment changes rapidly.…”