University of Oulu

Management control systems (MCS) in the small business context : linking effects of contextual factors with MCS and financial performance of small firms

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Author: Jänkälä, Sinikka1
Organizations: 1University of Oulu, Faculty of Economics and Business Administration, Department of Accounting and Finance
Format: ebook
Version: published version
Access: open
Online Access: PDF Full Text (PDF, 2.6 MB)
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Language: English
Published: 2007
Publish Date: 2007-08-14
Thesis type: Doctoral Dissertation
Defence Note: Academic dissertation to be presented, with the assent of the Faculty of Economics and Business Administration of the University of Oulu, for public defence in Auditorium TA105, Linnanmaa, on August 24th, 2007, at 12 noon
Reviewer: Professor Robert Chenhall
Professor Lars Hassel


Small businesses are numerous in any country. However, we have very limited knowledge regarding their management accounting (MA) and management control systems (MCS). Traditionally, it has been stated that small firms do not need and use MCS due to their simple structures and poor resources. On the other hand, a few studies on high technology firms have shown that these firms have developed their MCS and are also utilizing sophisticated management accounting practices and information.

The aim of this study is to analyse small firms’ use of MCS practices as well as to examine the role of MCS practices and information of small firms in a contingency theoretical framework. Furthermore, the study is not only focusing on small, rapidly growing firms but also on traditional, more stable small firms, all employing from 10 to 49 persons. Based on the survey responses of 183 managing directors of small Finnish firms, the study describes the diffusion and penetration of MCS practices and information among small firms. Two theoretical models are constructed linking the use of MCS with strategy, perceived environmental uncertainty (PEU), use of diversified management team and financial performance of small firms. Tests are made by using structural equation modeling (SEM).

The results suggest that small firms do use a wide range of MCS practices and information. The main results also indicate that the use of a more diversified management team seems to increase the use of MCS practices and information. The use of more advanced practices is related to small firms which have been more profitable or which have had lower growth rates in sales. In addition, the use of MCS seems to be associated with small firms’ strategies, both realized and intended. The pursued strategy seems to drive small firms’ profitability and growth in net sales. However, such an association was not found between the intended strategy and financial performance after two years. The use of MCS seems to have only a few positive effects on small firm’s financial performance. Nevertheless, more use of advanced dimensions of MCS seems to predict significant improvements for longer-term growth in net sales.

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Series: Acta Universitatis Ouluensis. G, Oeconomica
ISSN-E: 1796-2269
ISBN: 978-951-42-8528-8
ISBN Print: 978-951-42-8527-1
Issue: 30
Copyright information: © University of Oulu, 2007. This publication is copyrighted. You may download, display and print it for your own personal use. Commercial use is prohibited.