Summary Articles Advanced Management Accounting (AMA)

Summary papers AMA
BALANCING THE DUAL RESPONSIBILITIES OF BUISNESS UNIT CONTROLLERS: FIELD AND SURVEY
EVIDENCE – V.S. MAAS & M. MATJEKA (2009) ........................................................................................ 2
WHY CONTROLLERS COMPRISE ON THEIR FIDUCIARY DUTIES: EEG EVIDENCE ON THE ROLE OF THE
HUMAN MIRROR NEURON SYSTEM – P.I. ESKENAZI, F.G.H. HARTMANN & W.J.R. RIETDIJK (2016) ...... 5
REAL OPTIONS IN THE MOTION PICTURE INDUSTRY: EVIDENCE FROM FILM MARKETING AND
SEQUELS – J.J. GONG, W.A. VAN DER STEDE, S.M YOUNG (2011) .......................................................... 7
UNRAVELING THE BLACK BOX OF COST BEHAVIOR: AN EMPIRICAL INVESTIGATION OF RISK DRIVERS,
MANAGERIAL RESOURCE PROCUREMENT, AND COST ELASTICITY – M. HOLZHACKER, R. KRISHNAN,
M.D. MAHLENDORF (2015) ...................................................................................................................... 9
BUDGET-BASED CONTRACTS, BUDGET LEVELS, AND GROUP PERFORMANCE – J.G. FISHER, S.A.
PEFFER & G.B. SPRINKLE (2003) ............................................................................................................. 12
ARE SELLING, GENERAL, AND ADMINISTRATIVE COSTS “STICKY”? M.C. ANDERSON, R.D. BANKER &
S.N. JANAKIRAMAN (2003)..................................................................................................................... 19
DO EARNINGS TARGETS AND MANAGERIAL INCENTIVES AFFECT STICKY COSTS? – I KAMA & D WEISS
(2013) ..................................................................................................................................................... 22
CONDITIONS THAT SHAPE THE LEARNING CURVE: FACTORS THAT INCREASE THE ABILITY AND
OPPORTUNITY OF LEARN – E. WIERSMA (2007) .................................................................................... 24
DETERMINANTS AND CONSEQUENCES OF TRANSFER PRICING AUTONOMY: AN EMPIRICAL
INVESTIGATION – C.X. CHEN, S. CHEN, F. PAN & Y WANG (2015) ......................................................... 27
BEHAVIORAL WORK OUTCOMES OF A STRATEGIC PERFORMANCE MEASUREMENT SYSTEM-BASED
INCENTIVE PLAN – L.L. BURNEY & S.K. WIDENER (2013) ....................................................................... 31
DYNAMIC DECISION MAKING USING THE BALANCED SCORECARD FRAMEWORK – K.A. HUMPHREYS,
M. SHAYNE GARY & K.T. TROTMAN (2016) ........................................................................................... 37
THE EFFECTS OF RISK PREFERENCE AND LOSS AVERSION ON INDIVIDUAL BEHAVIOR UNDER BONUS,
PENALTY, AND COMBINED CONTRACT FRAMES – A.G. BRINK & F.W. RANKIN (2013) ......................... 41
MONETARY INCENTIVES, FEEDBACK, AND RECOGNITION – COMPLEMENTS OR SUBSTITUTES?
EVIDENCE FROM A FIELD EXPERIMENT IN A RETAIL SERVICES COMPANY – S.M. LOURENÇO (2016) .. 44
PERFORMANCE TARGET REVISIONS IN INCENTIVE CONTRACTS: DO INFORMATION AND TRUST
REDUCE RATCHETING AND THE RATCHET EFFECT? – J.C. BOL & J.B. LILL (2015) .................................. 47
PERFORMANCE MEASUREMENT AND INCENTIVE COMPENSATION: AN EMPIRICAL ANALYSIS AND
COMPARISON OF CHINESE AND WESTERN FIRMS’ PRACTICES – K.A. MERCHANT, W.A. VAN DER
STEDE, T.W. LIN & Z. YU (2011) .............................................................................................................. 49




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,BALANCING THE DUAL RESPONSIBILITIES OF BUISNESS UNIT CONTROLLERS: FIELD AND SURVEY
EVIDENCE – V.S. MAAS & M. MATJEKA (2009)
Abstract: We examine how business unit (BU) controllers balance their dual roles of providing
information for both local decision-making (local responsibility) and corporate control (functional
responsibility). The existing literature suggests that organizations can improve the quality of financial
reporting and internal controls by increasing the emphasis on the functional responsibility of BU
controllers. In this study, we rely on prior literature and insights from field interviews to argue that
such an increase also leads to role ambiguity and conflict, which in turn can lead to an increased
tolerance of data misreporting. We test our predictions using survey responses of 134 BU controllers.
As predicted, we find that the emphasis on the functional responsibility of BU controllers is positively
associated with role conflict and role ambiguity, both of which are related to data misreporting at the
BU level.

As is the case for auditors and directors, BU controllers balance conflicting responsibilities and have a
great influence on the integrity of financial reporting. BU controllers functional responsibility is to
‘‘fairly and objectively’’ report (to head quarter) on the economic situation of their unit and to
facilitate corporate control. BU controllers are also members of local management teams, and their
local responsibility is to provide BU management with information to facilitate strategic and
operational decision-making. Our study shows that increasing the emphasis on the functional
responsibility of BU controllers can paradoxically have detrimental effects on controllers’ ability to
act as a ‘‘corporate watchdog.’’




We find that controllers perceive their local responsibilities as more important than their functional
duties. As a result, strengthening their functional ties makes it harder for them to reconcile their dual
roles, exposing them to higher levels of role conflict and role ambiguity. We further argue that
greater controller role conflict and role ambiguity can lead to data misreporting at the local level.
Consequently, a greater emphasis on the functional responsibility of BU controllers can indirectly
lead to an increase instead of a decrease in data misreporting practices.

Changing roles controller over time
- Historic role: bean counter, prepare documents
- Improve “business orientation”
o Participate more in operational and strategic decision making
- Many scandals, new corporate governance regulations
o As an effect, controllers become more independent again
o E.g., performance dependent rewards CFO’s < CEO’s

The results of our study imply that BU controllers, one of the key accounting institutions
safeguarding the integrity of financial reporting, are not immune to role stress and are likely to resort
to data misreporting as a dysfunctional way of dealing with it. Although prior organizational behavior
studies find that role stress is associated with dysfunctional behavior such as absenteeism, poor
productivity, or lying, our study is the first of which we are aware to show that role conflict and role
ambiguity can adversely affect the quality of financial reporting.


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, Hypotheses
Effect of decision-making support
It has often been argued that functional responsibilities of BU controllers are difficult to reconcile
with their role of supporting local decision-making. The dual responsibilities of BU controllers could
be substitutes—performing the functional role makes it harder to perform the local role and vice
versa. However, an alternative view is that complementarities exist between controllers’ dual
responsibilities. Sathe (1982) argues that ‘‘strong’’ controllers are able to overcome the apparent
conflict between their responsibilities and that by getting closely involved in local decision-making,
they will also be in a better position to perform their functional duties. While both views above are
plausible, Indjejikian and Mateˇjka (2006) find that high emphasis on the functional responsibility of
BU controllers is negatively associated with BU managers’ satisfaction with services provided by their
BU controllers. This evidence suggests that complementarities between controllers’ responsibilities
are not large enough to dominate inherent tensions between the dual roles discussed earlier. This
leads to our first hypothesis:

H1: The emphasis on the functional responsibility of BU controllers is negatively associated with
decision-making support of local management.

Effect on data misreporting (= in lecture manipulation)
The key functional responsibility of BU controllers is to prevent misreporting (slack building in
budgets, shift funds to meet performance goals) of information presented to higher-level executives.
Yet, the extent to which BU controllers are able and willing to objectively report about BU affairs
varies. BU controllers can be viewed as rational agents who allocate their effort over multiple tasks.
Increasing the emphasis on the functional strengthens implicit and explicit incentives of BU
controllers to allocate effort to their functional task(s). This change in effort allocation alleviates data
misreporting issues albeit at the cost of less effort being devoted to the local task(s) of supporting
local managers.

Existing empirical evidence is consistent with the view based on agency theory. San Miguel and
Govindarajan (1984) show that when firms emphasize the functional responsibility of BU controllers
(by allocating more authority to the corporate controller), their internal audit function is relatively
less concerned with compliance issues. Indjejikian and Mate˘jka (2006) find that increasing the
emphasis on the functional responsibility of BU controllers is associated with less slack in BU
performance targets. This motivates our second hypotheses:

H2: The emphasis on the functional responsibility of BU controllers is negatively associated with data
misreporting.

The above prediction rests on the assumption that BU controllers act as impersonal information
providers who are indifferent about how they allocate their effort. However, psychological research
suggests that individuals who need to balance dual responsibilities often experience tension in the
form of role conflict or role ambiguity. A large stream of literature on role theory has identified both
these forms of role stress as key determinants of organizational behaviour.

We argue that BU controllers in our sample perceive their local responsibility as the dominant one
and have a strong sense of allegiance to local BU managers. In other words, BU controllers are not
indifferent between their dual responsibilities— they recognize the importance of their functional
duties, yet they much rather work on their local tasks and make themselves useful to BU managers
with whom they interact on a day-to-day basis. Thus, BU controllers’ personal ambitions as well as
role expectations of their local and functional superiors make BU controllers’ local responsibilities
paramount regardless of the emphasis on their functional responsibilities. Thus, if some firms
increase the emphasis on the functional responsibilities, the ‘‘range for the game’’ becomes smaller

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