H.C. Dekker

Control of inter-organizational relationships: evidence on appropriation concerns and coordination requirements

Abstract This paper presents a framework of the control of inter-organizational relationships. Building on transaction cost economics and organizational theory, two control problems are identified that arise when firms engage in inter-organizational relationships: the management of appropriation concerns and the coordination of tasks. The control mechanisms used to manage these control problems and their interrelationships with informal (trust-based) mechanisms are discussed. The explanatory power of the framework is assessed by a case study of a strategic alliance between a buyer and a supplier of railway safety equipment.

A survey of the adoption and use of target costing in Dutch firms

This paper reports the results of a survey among Dutch firms listed at the Amsterdam stock exchange on the adoption and use of costing practices that resemble the Japanese target costing concept. Nineteen out of thirty-two manufacturing firms claimed to use these practices, although they used different names for them. The study suggests that these practices were developed independently of the Japanese practice. Adoption is highest among assembling firms and is related to a competitive and unpredictable environment. Cost reduction is the main objective and benefit of these practices. The product development and design departments are leading in the target cost management process, which is mainly performed in team structures.

Organizational Learning and Interfirm Control: The Effects of Partner Search and Prior Exchange Experiences

Partner search processes and prior exchange experiences constitute important organizational learning processes that provide firms with valuable partner information, which may enhance their ability to design control structures for new interfirm transactions. By increasing trust and by providing first-hand partner information, prior experiences may, however, also reduce the need for control and for new information during the search process. An analysis of 287 transactions between buyers and suppliers of information technology supports that partner search and experience facilitate learning and subsequent control design, but that partner experience simultaneously reduces the need for control and the intensity of the partner search process. Our findings thus indicate that partner experience can have opposite and offsetting effects on control design, which contributes to the discussion on whether prior exchange experiences complement or substitute formal control.

Supply Management and Management Accounting: A Case Study of Activity-Bases Costing

The role of management accounting in supply chain management (SCM) is discussed and a case study of an Activity-Based Costing (ABC) model to support SCM decisions is given. The logistics literature relating to cooperation within supply chains is reviewed. SCM is discussed using a typology of four forms of SCM: physical integration, information integration, control integration and infrastructure integration. It is argued that management accounting plays an as yet undefined role in SCM, and it is specifically focused on ABC. A case study is provided of a supply chain in the pharmaceutical industry, where an ABC model was developed to calculate the consequences of changing activities in a supply chain, and two examples of calculations made for infrastructure and control integration are given. Finally, it is commented that using accounting measures can be important, but is not sufficient for the success of SCM.

Accounting Research in Family Firms: Theoretical and Empirical Challenges

Abstract Family firms play a significant role in the global economy. Consistently, over the last two decades academia has turned its attention to the family dimension as a determinant of business phenomena, and this interest has increased over time. While family business research has reached an age of ‘adolescence’ as a field of study, accounting research to date seems to have been rather slow to pick up on the distinctive characteristics of family firms, and their implications for accounting and reporting practices. In an attempt to accelerate and support research in the field, in this article we highlight theoretical and empirical challenges that accounting scholars need to consider when addressing issues related to accounting and reporting in family firms. These challenges include the selection and potential mixing of appropriate theoretical frameworks, and complications in defining operationally what family firms are. We also provide a ‘state of the art’ of studies in financial accounting, management accounting and auditing, identifying which issues in relation to family firms have been addressed in the research, and which theories, research methods and types of data have been used in these studies. We conclude by providing directions for future research that can advance our understanding of accounting and reporting in family firms.

Are Employee Selection and Incentive Contracts Complements or Substitutes

There is a debate in the literature as to whether employee selection is a substitute or complement to incentive contracting. We argue that incentive contracts and selection can be both complements and substitutes conditional on the contracting difficulty faced by the firm. We examine these control choices in a setting where contracting difficulties arise due to the firms choice of strategy and from the volatility created by the firms external environment. We select a firms commitment to organizational learning (OL) as our strategic choice variable as this provides a useful proxy for identifying settings where explicit incentive contracting is difficult. The results show that, as firms become increasingly committed to OL, incentive contracts and employee selection operate as complements. However, with a high commitment to OL and an increasing level of external volatility, contracting on performance measures will become less effective. In this context, our results indicate that there is a substitution effect toward employee selection.

From Make-or-Buy to Coordinating Collaboration: Management Control in Strategic Alliances

Coase (1937) first explained firm boundaries as a solution to minimizing the costs of accessing markets — what Williamson (1975) termed “transaction costs”. Over time, innovations in management control and changes to legal structures have reduced the costs of monitoring, raised the costs of behaving opportunistically and created ways for partners to credibly commit to future actions. At the same time, the development of valuable and inimitable resources by entrepreneurial firms are a basis for collaboration between partners with complementary resource endowments (Penrose, 1959). Together these forces have transformed the dichotomous choice of “make” versus “buy” into a selection among a variety of hybrid modes of organization; for example, strategic alliances, joint ventures and supply chain partnerships. Hybrid structures blend characteristics of arms-length market transactions with modes of governance and control that are more common to large decentralized firms. The thesis of this chapter is that innovation in management controls has been central to the emergence, diversity and stability of hybrid organizational forms.

When One Size Does Not Fit All: Mitigating Heterogeneous Compensation Risk Through Subjective Evaluations

Firms typically use a ‘one-size-fits-all’ (OSFA) compensation contract that specifies a common formulaic relation between performance and compensation (i.e., a performance bonus) for non-executive managers in similar jobs. However, a contract that is appropriate on average, may be suboptimal for individual managers if heterogeneity in the operating environment creates varying compensation risk. We use field data from a retail firm that introduced an OSFA bonus compensation plan for its store managers. The common bonus formula is based on a weighted sum of objective measures of sales performance (i.e., sales per hour, sales-to-goal) and a subjective rating made by supervisors. The firm intended the supervisors’ discretionary subjective rating to evaluate performance on dimensions that are difficult to measure (e.g., store appearance). We test and find that supervisors use their discretion to also address heterogeneity of compensation risk through the subjective rating. Supervisors give uniformly higher subjective ratings to managers whose objective performance measures are measured with greater noise. This result obtains after controlling for manager ability and performance, and for alternative mechanisms to mitigate differences in compensation risk (e.g., salary changes, sales target changes, and bonus adjustments). The evidence suggests that in addition to the dimensions of performance that the firm intends for subjective ratings to evaluate, supervisors use discretion in subjective ratings to provide manager-specific risk premium for non-executive managers who are subject to an OSFA contract.Firms typically use a ‘one-size-fits-all’ (OSFA) compensation contract that specifies a common formulaic relation between performance and compensation (i.e., a performance bonus) for nonexecutive managers in similar jobs. However, a contract that is appropriate on average, may be suboptimal for individual managers if heterogeneity in the operating environment creates varying compensation risk. We use field data from a retail firm that introduced an OSFA bonus compensation plan for its store managers. The common bonus formula is based on a weighted sum of objective measures of performance and a subjective rating made by supervisors. The firm intended the supervisors’ discretionary subjective rating to evaluate performance on dimensions that are difficult to measure (e.g., store appearance). We test and find that supervisors give uniformly higher subjective ratings to managers whose objective measure of sales performance is measured with greater noise, and to managers who face higher performance target difficulty, the latter assessed both prior to (ex ante) and subsequent to (ex post) the evaluation period. These results obtain after controlling for manager ability and performance, and for alternative mechanisms to mitigate differences in compensation risk (e.g., salary changes, sales target changes, and bonus adjustments). The evidence suggests that supervisors use discretion in subjective ratings to provide manager-specific risk premiums for non-executive managers who are subject to an OSFA contract.

The Tone from Above: The Effect of Communicating a Supportive Regulatory Strategy on Reporting Quality

As part of their regulatory strategy, authorities may request firms to periodically submit mandatory self-assessments. The effectiveness of such strategies depends on the quality of the information that firms provide. We conduct a field experiment to assess how official communications reflecting a supportive regulatory strategy influence firms’ reporting quality. In collaboration with the Authority for the Financial Markets in the Netherlands, we manipulate the content of official letters that instruct financial intermediaries to submit a mandatory self-assessment. As part of the Registered Report Process, we submitted our hypotheses, experimental procedure, and planned statistical analyses before data collection. We expected an overall positive effect of a high support letter on reporting quality, which is weakened by firm size, enhanced by long-term orientation and reversed by (becomes negative for) short-term orientation. The planned analyses reveal a negative effect except for long-term oriented firms, providing no support for the average expected effect nor for moderation by firm size, but supporting the moderating influence of time horizon.