Overcoming Limits in the Design of Formal Management Control Systems: Evidence from the Field

Abstract

The management accounting literature emphasizes the importance of management control systems as means to monitor and influence activities in a firm. Whereas prior works in this area primarily focus on the design of explicit mechanisms such as the design of formal incentive contracts or performance evaluations systems, a growing stream of research suggests the importance of considering informal means as part of an effective management control system. However, the difficulty in observing such informal controls has given rise to abundant analytical research with only scant empirical evidence. In my dissertation, I intend to shed light on how organizations implement and maintain different forms of informal control mechanisms by providing empirical evidence. In my first two essays, I explore informal controls at two organizations, and demonstrate how such mechanisms can mitigate limitations in explicit contracting. My third essay explores the efficacy of relative performance benchmarks at public firms, and thereby sheds light on whether the use of relative performance benchmarks provides a successful means to follow the informative principle in standard incentive contracts.