Management control matching patterns and firm innovation modes

ABSTRACT

Using empirical data in China from 2010 to 2018, this paper investigates the relationship between management control matching patterns and different modes of innovation by introducing a text analysis method. The study found that adaptation matching pattern has a significant positive impact on radical innovation, execution matching pattern has a significant positive impact on incremental innovation, and compensatory matching has a significant positive effect on balanced innovation. Additional analyses further show that the positive ‘control-innovation’ relationship becomes more significant in high-tech firms. Environmental uncertainty and the degree of executive risk preference have a heterogeneous regulatory effect on the choice of control matching and innovation model.

KEYWORDS:

• Formal control
• informal control
• matching pattern
• innovation mode

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Scholars have constantly emphasized that text analysis has expanded the methods and ideas of management control research in recent years (Van der Stede 2016). Scholars in the field of management control have obtained many achievements by using text analysis tools (Tetlock, Saar-Tsechansky, and Macskassy 2008; Li 2008).

2 The report of directors is the most informative content in the regular financial reports of the company. Many authoritative studies analyze the contents of directors’ reports of listed companies (Bradshaw et al. 2021) and find that directors’ reports have significant information value (Cho and Muslu 2021).

3 The keywords which represent the implementing degree of formal and informal controls are selected from classical studies on management control.

4 The cost of complementary match II is too high to play the advantages of the control tool itself, so it is an unreasonable match in the theory, which we do not discuss.

5 ST indicates that the firm’s financial situation has deteriorated (such as net assets lower than face value, consecutive years of losses), which is forced by the Stock Exchange or the listed firm itself, and the stock transaction is special treatment. So it is called ‘ST’.

6 First, we used the definitions of formal control and informal control from the internationally authoritative Journal of Accounting (four doctoral students initially identified the keywords for formal control and informal control). Second, these keywords were grouped into the two categories of formal control and informal control through discussion and revision by a group of experts (consisting of two professors of management accounting and six entrepreneurs) until a high level of reliability and effectiveness was reached; finally, we quantified formal control and informal control according to the system of categories.

7 Refer to 13 Management Accounting Technologies selected in Xiao, Du, and Zhou (2009) article: Ben-Volume-Leigh analysis (CVP), ABC, ABM, standard cost method, target cost method, continuous improvement cost method, value chain analysis, operating budget, capital budget based on discount cash flow, EVA based performance measurement, responsibility accounting, integrated performance measurement and performance-based compensation. Summarize the word frequency to form ‘management control technical indicators’.

8 With reference to Zhang and Chen (2015), we selected ‘honesty, integrity, seriousness, adjustment, comprehensive, improvement, saving, and cost’ and used the frequencies of these keywords to determine a management accounting culture.

Additional information

Funding

This work was supported by Natural Science Foundation of Anhui Province [Grant number 2008085MG230]; Anhui Women's Federation, Anhui Provincial Department of Education Women's theory research key project [Grant number 2022-FNYJ-008]; Humanities and Social Sciences Foundation of the Ministry of Education in China [Grant number 20YJC630245]; National Natural Science Foundation of China [Grant number 72102108].

Notes on contributors

Xiangfei Zeng

Xiangfei Zeng is an associate professor in the School of Business, Anhui University of Technology, China. Her current research interests include management control theory and internal control.

Ting Zhang

Ting Zhang is a postgraduate student in the School of Business, Anhui University of Technology, China. Her current research interest is management control system.

Lianghua Chen

Lianghua Chen is a professor in the School of Economics and Management, Southeast University, China. His current research interests include management accounting and corporate innovation.

Yafei Zu

Yafei Zu is an associate professor in the School of Economics and Management, Nanjing University of Science and Technology, China. Her current research interests include corporate innovation and inter-organisational management control.