Can Management Accounting Be Helpful for Young and Small Companies? Systematic Review of a Paradox

• DOI: http://doi.org/10.1111/ijmr.12197
• Published date: 01 April 2019
• Author: Michael Pelz
• Date: 01 April 2019

International Journal of Management Reviews, Vol. 21, 256–274 (2019)

DOI: 10.1111/ijmr.12197

Can Management Accounting Be Helpful

for Young and Small Companies?

Systematic Review of a Paradox

Michael Pelz

Department of Economics and Management, Karlsruhe Institute of Technology, Kaiserstrasse 89, 76133, Karlsruhe,

Germany

Corresponding author email: michael.pelz@kit.edu

While management accounting (MA) implies potential benefits for large established

companies, its usefulness for young and small companies is less clear. This review

analyzes and partially resolves the paradox and provides a structured overview of

present knowledge. A systematic literature search yielded 67 empirical papers in 25

journals. Drawing on the results of a two-step coding process, this study proposes 20

novel second-level constructs expressing the types of MA, their antecedents and their

consequences in young and small companies. The main results show that, in discussing

MA, the literature refers mainly to business planning, accounting-based management

control activities and financial accounting. Most studies find MA to be helpful for

young and small companies because it provides tools to overcome difficulties arising

from company growth and reduces information asymmetry with external partners.

Overall, however, the empirical literature on this topic is highly concentrated, offers

theoretical construct definitions of poor quality, and lacks a clear statement of what

MA really does in young and small companies. Therefore, future research and theory

development are warranted.

Introduction

Management accounting (MA) commonly refers to

a set of practices that help managers to make deci-

sions and to plan, organize and control (Ahrens and

Chapman 2007; Otley 2001). Management account-

ing research has usually focused on large, established

companies whose managers use MA to handle orga-

nizational complexity (Scapens and Bromwich 2010;

Shields 1997). The Institute of Management Accoun-

tants (IMA) defines management accounting as ‘a

profession that involves partnering in management

decision-making, devising planning and performance

management systems, and providing expertise in fi-

nancial reporting and control to assist management

in the formulation and implementation of an organi-

zation’s strategy’ (Institute of Management Accoun-

tants 2008), indicating MA’s association with large,

established companies.

However, when it comes to small and young

organizations, the literature is less clear on whether

MA is helpful. Two lines of argumentation can be

distinguished. One line finds various MA practices to

be irrelevant. For instance, business planning should

be neglected as the costs exceed the benefits (Bhid´

e

2000; Gumpert 2003; Honig and Karlsson 2004;

Honig and Samuelsson 2014; Sarasvathy 2001).

Also, long-term financial planning and budgeting are

perceived as ‘frequently nonsensical’ by young and

small companies (Granlund and Taipaleenm¨

aki 2005,

p. 35). This line of reasoning argues that MA practices

seem to hinder the organizational development.

In contrast, another line argues that MA practices

are helpful, finding that MA systems are important

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Can Management Accounting Be Helpful 257

for company growth (Davila and Foster 2007; Davila

et al. 2010) and that business planning yields bene-

fits (Delmar 2015; Delmar and Shane 2003; Greene

and Hopp 2017). This line of reasoning emphasizes

the usefulness of various MA practices in young and

small companies.

Paradoxically, MA in young and small companies

appears to be helpful in only some cases. Some schol-

ars argue that MA hinders organizational develop-

ment because it diverts time and attention from more

important tasks (Granlund and Taipaleenm¨

aki 2005;

Honig and Samuelsson 2014). Other researchers con-

tend that using MA allows a structured management

approach and overcomesobstacles associated with or-

ganizational growth (Davila and Foster2007; Greene

and Hopp 2017). The literature offers a paradox

with ‘contradictory yet interrelated elements’ (Lewis

2000, p. 760) – perhaps owing to the type of MA

approach considered or the reasons for using MA.

While other studies have looked at the broader field

of MA in entrepreneurship or small and medium-

sized enterprises (SMEs), the paradox has remained

unresolved. Lavia L´

opez and Hiebl (2015) categorize

MA in SMEs into five themes, but are silent about

MA’s diversity and usefulness for young and small

companies. Davila et al. (2009) review accounting

and control in entrepreneurship with a focus on theo-

retical concepts, but are not explicit about the research

method and cover work up to only 2009. Ireland

and Webb (2007, p. 898) review entrepreneurship

research and find that ‘significant research opportuni-

ties remain for scholars’ at the intersection of account-

ing and entrepreneurship. However, they provide few

details or structured knowledge. Hence, prior research

on the topic addresses the paradox unsystematically,

leaving a clear gap as to the usefulness and variety

of MA practices in young and small organizations.

This article presents a structured overview of ex-

isting knowledge to better understand and resolve

the paradox and provide new opportunities for the-

ory building and empirical research (Shepherd and

Suddaby 2017). The review encompasses studies on

MA in an organizational context critically different

from large, established organizations, where MA is

mostly studied. This context includes start-up com-

panies, which are both young and small, as well as

companies that are small but not necessarily young.

Welook at both kinds of companies because they have

less organizational complexity than large, established

organizations (Anderson 1999).

Three research questions guide this literature

review:

1. How is MA useful for youngand small companies,

and how is it not useful?

2. What leads young and small companies to adopt

MA (antecedents)?

3. What outcomes (consequences) result from using

MA in young and small companies?

To answer these questions, we conducted a sys-

tematic literature review of 67 empirical papers in 25

journals. Through a two-step coding process, we es-

tablished 20 novel second-levelconstr ucts for MA in

young and small companies, allowing us to generate

new insights and point out gaps in the literature.

Our analysis reveals several characteristics of the

present literature. First, most studies find MA to be

useful for young and small companies because it

helps to handle managerial challenges associated with

growth. Also, MA helps to reduce the information

gap between young and small companies and exter-

nal partners such as investors. Second, when talking

about MA in young and small companies, the litera-

ture focuses on business planning, accounting-based

management control activities and financial account-

ing. While three antecedents for adopting MA are

most commonly researched (organizational charac-

teristics, professional characteristics of founders and

managers, and presence of external investment), most

studies refer to the consequences in terms of perfor-

mance. Third, the literature lacks a clear understand-

ing of the role of planning and performance measure-

ment. Fourth, the construct quality in the MA and

entrepreneurship literature is poor, with just 15% of

all constructs being explicitly defined. Finally, quali-

tative research on this topic is scarce.

The main contribution of this review lies in the

novelty of its structured analysis, which is different

from and more profound than prior work (Davilaet al.

2009; Lavia L´

opez and Hiebl 2015). Our approach

to analysis allows us to deal with the paradox and

derive a broader understanding of MA in young and

small companies by providing an overview of MA

practices, their antecedents and their consequences.

This contribution is not only useful for researchers,

but also supplies a vital base for theory development

in this under-researched field.

The remainder of this paper is organized as fol-

lows. Next, we describe the research method. Then,

we present our findings, along with definitions of the

novel 20 second-level constructs. Lastly, we discuss

our findings and suggest implications for research and

practice.

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