JOURNAL OF MANAGEMENT ACCOUNTING RESEARCH American Accounting Association

Vol. 27, No. 1 DOI: 10.2308/jmar-10461

2015
pp. 177–191

EDITORIAL

Management Accountant—What Ails Thee?

It is difficult to free fools from the chains they revere.

–Voltaire (1767)

INTRODUCTION

F
or decades management accountants have made substantial contributions to the practice,
research, and teaching of business. Economists such as Holmstrom (1979), Holmstrom and
Milgrom (1991), and Jensen and Meckling (1976) identified agency problems that could
exist between the firm and its owners, discussed the informativeness of signals of managerial effort,
and the optimal use of these signals in contracting. Management accountants calibrated the
properties of the signals, identified optimal weighting schemes for the signals, determined the
relative values of signals in contracts, and assessed the difficulty in designing goal congruent
systems using these signals (Banker and Datar 1989; Feltham and Xie 1994; Datar, Kulp, and
Lambert 2001). Terms such as ‘‘controllability,’’ ‘‘congruence,’’ and ‘‘balance,’’ which form the
bedrock of modern accounting and control systems, were first discoursed in the management
accounting literature. It is practically impossible to think of a major corporation that does not have a
Balanced Scorecard (Kaplan and Norton 1992). Topics such as Activity Based Costing (ABC),
Time Driven ABC, Customer Lifetime Value, Capacity Cost Allocation, Target Costing, and the
Balanced Scorecard, are the staples of undergraduate, master’s, and M.B.A. curricula throughout
the world.
Privately however, management accountants appear to have had two damaging hobbies—self-
flagellation, and exchanging doomsday predictions. The same people who will laugh when told that
a Zombie apocalypse is imminent have no trouble declaring (almost triumphantly) that the end of
management accounting is within sight. The result is that we scare away the young, further
damaging our dwindling numbers.
Little respect is accorded to a discipline that insists on endless debates about its own theoretical
and methodological boundaries. We have no trouble teaching our undergraduate or graduate
students that management accounting ‘‘measures, analyzes, and reports financial and nonfinancial
information that helps managers make decisions to fulfill the goals of an organization’’ (Horngren,
Datar, and Rajan 2012, 4), or that ‘‘A fundamental purpose of managerial accounting is to enhance
firm value by ensuring the effective and efficient use of scarce resources’’ (Sprinkle and Williamson
2007, 415).

I thank Shane Dikolli, Satish Joshi, Anne Lillis, Brian Mittendorf, and Michael Williamson for their helpful comments.
The views expressed in this paper are those of the author and do not reflect an official position of the American
Accounting Association (AAA) or the AAA’s Management Accounting Section.
Published Online: May 2015

177
178 Krishnan

What is it about the aforementioned definitions that makes it so difficult for us to reach closure
on what is and what is not management accounting? These definitions are broad and give us license
to study a variety of topics using a variety of methods—is this freedom stifling? Do we not agree
that ‘‘In fact, it is not too great an exaggeration to say that management accounting and control
systems are so important and ubiquitous today that if accountants and information people wrapped
up their systems and took them home, the whole process of producing society’s material goods and
services along with the governance of social order would grind to a standstill’’ (Macintosh 1994,
1)?
I suspect that the only problem that we have is a lack of self-esteem as management
accountants. I am not sure if this lack of self-esteem arises because of nature or nurture. Do people
with poor self-esteem self-select into management accounting? Or do the established scholars in the
field do little to nurture a feeling of self-worth in the young? Regardless, I cannot help getting the
feeling that it is because of deep-rooted feelings of inadequacy that in public we accuse the
nonmanagerial accountants of excluding us or ignoring us, but in the privacy of our ‘‘blind
reviews,’’ and departmental curriculum, and other meetings, we are the first to lend vocal support to
the chant of ‘‘Kill the pig.’’1
Let me offer some evidence.

EVIDENCE OFFERED BY DOOMSDAY PREDICTORS

Evidence 1: The Management Accounting Content in M.B.A. Programs Is Reducing

My assessment is that management accounting does seem to be exiting from the core M.B.A.
curriculum in some schools, based on informal surveys of the top 50 M.B.A. programs. It also
seems to be the case that the curriculum space accorded to topics such as financial statements
analysis or business analytics is increasing.
But wait—I have three questions: First, who exactly are making these curriculum decisions?
Are management accountants less likely to be deans/associate deans/department chairs/curriculum
committee chairs, etc.? An informal Google search reveals that management accountants are not at
all underrepresented in positions of power in business schools; indeed several of the Big-10
universities’, as well as highly ranked business schools’, associate deans and accounting department
chairs would not have any trouble labeling themselves as management accountants. So, why then
are they not putting up a good fight on behalf of inclusion of management accounting in the core
curriculum? I know from my experience that if I offer evidence in support of including a topic in the
M.B.A. or undergraduate curriculum, it is given serious consideration in my department. While
some skepticism of our research is unarguably healthy, if we are completely populated by
nonbelievers, even an optimist like me cannot fathom any future for management accounting.
Second, why can we teach not financial statement analysis (FSA) or business analytics, and
embellish it with a managerial flavor? According to Subramanyam and Wild (2013), Financial
Statement Analysis (FSA) is ‘‘the application of analytical tools and techniques to general-purpose
financial statements and related data to derive estimates and inferences useful in business analysis.’’
Why is FSA not a teaching option for management accountants? Fundamentally, it involves
decision making with accounting information, which is in our sandbox.
Finally, I keep hearing that management accounting teaching slots are being filled by faculty
who do financial accounting research. Frankly, this befuddles me. Is financial accounting not that

1
Although it is required reading in most high school curricula throughout the world, it may not be a waste of time
to re-read Lord of the Flies (Golding 1954) for a chilling reminder of the consequences of suspending individual
judgment to the collective.

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Management Accountant—What Ails Thee? 179

subset of accounting that deals with the preparation, reporting, and interpretation of financial
statements prepared in accordance with Generally Accepted Accounting Principles (GAAP), or
similar regulatory standards? Therefore, if there is one faculty slot, and the immediate teaching need
is in management accounting, why would we hire a financial accounting researcher? In fact, should
we not be seeing the opposite trend where we increasingly hire management accountants to teach
financial accounting? Most administrators that I have interacted with believe in the notion of
flexible teaching capacity. Management accountants provide flexible capacity because they are well
equipped to teach both financial and management accounting.2

Evidence 2: Journals like JAR and JAE Do Not Accept Management Accounting
One of the distinguished panelists in this session (Salterio 2015) points out that two of our
eminent accounting journals, the Journal of Accounting Research (JAR), and Journal of Accounting
& Economics (JAE) do not publish management accounting topics. Salterio (2015, Table 1) lists
that one management accounting article was published in each of these two aforementioned
journals between 2010 and 2013. I was reasonably startled by this revelation and explored it further.
First, I looked at Salterio’s (2015) definition of what is included and what is excluded from the
definition of management accounting. Salterio (2015) first states, ‘‘I view management accounting
research as producing information for internal decision makers in an organization (e.g., Atkinson et
al. 1997).’’ This is not an unacceptable definition and I have no quibbles with it. However, the
article goes on to state, ‘‘Hence, I do not include as management accounting research, studies that
have been written by those who consider themselves as management accounting researchers but
who publish studies focused on how information affects market participants. For example, much of
what is considered executive compensation research (a management accounting topic in principle)
examines the effects of disclosures about executive compensation on market participants, not
internal decision makers’’ (Salterio 2015).
I have significant trouble excluding any issue related to executive compensation from
management accounting research. Indeed, executive compensation, whether it is used as (1) a
control system to mitigate moral hazard problems, (2) as a promotion and sorting device, or (3) to
attract and retain talent (i.e., to mitigate adverse selection problems), is fundamentally a
management accounting topic. Considerable research has shown that the properties of performance
measures, the balance between financial and nonfinancial measures, organizational structure such as
centralization and decentralization, and the availability and quality of other monitoring
mechanisms, influence compensation. If market participants react to executive compensation
plans, then would that not be a signal that the market cares how firms motivate their managers? Is
market reaction to executive compensation therefore not indicative of the value of internal
accounting and control systems?
I believe that such a restrictive definition of management accounting hurts us as a profession
and confuses our colleagues in other accounting disciplines. I doubt that there are many financial
accountants who will be unwilling to provide membership into their club for researchers working
on a variety of topics such as: the impact of financial reporting and disclosure on stock prices; the

2
I hasten to add that I arrive at this conclusion not because I believe that management accountants are superior
teachers or scholars. My deduction is merely based on the evidence that a majority, if not all accounting Ph.D.s
have had substantially more exposure to financial than managerial accounting in their undergraduate, master’s,
and Ph.D. programs. Most undergraduate accounting programs in the U.S. and other countries have at least two
required intermediate financial accounting courses for one course each in managerial accounting, audit, and tax.
Moreover, the intermediate financial accounting courses are typically prerequisites to the managerial accounting,
audit, and tax courses. One logical interpretation of this sequencing is that the financial accounting courses are the
building blocks for other courses that involve decision making with accounting information.

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use of accounting information in contracting in debt, labor, supply, and other markets; the real
effects of financial reporting and disclosure; the economics of regulation of financial reporting and
disclosure; bank regulation; international differences in financial reporting and the role of reporting
standards in international capital markets; the political economy of accounting standard setting; and
the effect of male hormones on earnings management.3 We need to consider whether we are
imposing excessive restrictions when we define what is and what is not management accounting. A
restrictive club always has fewer members and less overall impact.
Using the Sprinkle and Williamson (2007) definition of management accounting as stated
earlier, I re-examined the JAR and JAE publications that appeared during 2010–2013 and was
heartened to note that there were 16 articles that appeared in JAR and five in JAE that I would be
comfortable classifying as mainstream management accounting (Table 1). Is management
accounting underrepresented in many of our journals? Absolutely!4 Is it close to becoming extinct
in these other journals? Not really.

Evidence 3: JMAR Does Not Add Any Value

Few people will deny that the ‘‘value’’ of a journal or an article is hard to assess. One popular
metric is the Social Sciences Citation Index (SSCI). Unfortunately, JMAR is not included in SSCI;
therefore, it is not possible to assess JMAR’s impact using the SSCI metric. I conducted an
examination of the number of Google Scholare citations for the top three articles published since
2000 in our eight major journals (AOS, CAR, JAE, JAR, JMAR, MAR, and TAR). The results are
provided in Table 2. A heartening conclusion from the results in Table 2 is that the lack of SSCI
inclusion does not appear to hurt JMAR in terms of its impact.5
Taking a decidedly unscientific approach, I also looked at the lead article published in the latest
issue of each of these eight journals. The results are provided in Table 3. It can be concluded from the
results that JMAR articles are predominantly being cited outside the JMAR, relative to the other journals
(with the exception of the Review of Accounting Studies). If we assume the ‘‘impact’’ of a journal is also
a function of how much it contributes to the progress of scientific inquiry in other journals, then the
citation count of other journals has to be calibrated downward to adjust for self-references.
Based on my interpretation of Table 2, I believe that any conclusion about the impact of JMAR
needs to be positioned in the context of the impact of at least four of the other accounting journals:
AOS, CAR, MAR, and RAST. Furthermore, any conclusion about the impact of JMAR also has to
open a dialogue regarding the impact of JAE and JAR to audiences beyond these two journals, i.e.,
after controlling for the self-referential tendency of these journals.

BUILDING A BRIDGE TO A NICHE?

As it does Labro (2015), it annoys me when people refer to management accounting as a
‘‘niche’’ area and a journal whose objective is to publish management accounting research as a
‘‘niche’’ journal. Many years ago, when I was a Ph.D. student, I was under the impression that a

3
All but the last item on this list of topics was adapted from the ‘‘Aims and Scope’’ section of JAR. The last item
was the topic of a paper published in JAR in 2014.
4
A stark fact that leaped out of this analysis was that JAE had no managerial publications during the period that
used experimental, survey, or case methods. During the same period the American Economic Review (AER)
published numerous articles using these aforementioned methods. Indeed, in AER, there were more studies
published that used experimental techniques than archival techniques. I think it is time that some of us
accountants revisited the belief that while ‘‘all methods are equal, some methods are more equal than others’’
(apologies to Orwell [1946]).
5
On the other hand, management accountants who eschew citing relevant papers from JMAR do hurt JMAR in
terms of impact.

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Volume 27, Number 1, 2015
Management Accountant—What Ails Thee?
Management Accounting Articles Published during the Period 2010–2013
Date, Volume, Issue, Pages
Journal of Accounting Research
March 2010, 48 (1): 147–176
September 2010,
48 (4): 767–794
December 2010, 48 (5): 1015–1047
June 2011, 49 (3): 753–790
September 2011, 49 (4): 1001–1039
December 2011, 49 (5): 1223–1247
March 2012, 50 (1): 197–231
May 2012, 50 (2): 495–540
May 2012, 50 (2): 553–592
September 2012, 50 (4): 931–966
September 2012, 50 (4): 967–1000
March 2013, 51 (1): 201–224
March 2013, 51 (1): 105–133
June 2013, 51 (3): 631–671
December 2013, 51 (5): 1159–1186
December 2013, 51 (5): 1187–1220
Journal of Accounting & Economics
April 2010, 49 (3): 247–262
April 2010, 49 (3): 263–280
February 2011, 51 (1): 171–185
Journal of Management Accounting Research
Volume 27, Number 1, 2015
181
TABLE 1
Author(s) and Title
Jeffrey Hales, Michael Williamson. Implicit Employment Contracts:
The Limits of Management Reputation for Promoting Firm
Productivity.
Ramji Balakrishnan, Leslie Eldenburg, Ranjani Krishnan, Naomi
Soderstrom. The Influence of Institutional Constraints on
Outsourcing.
John Harry Evans III, Nandu Nagarajan, Jason Schloetzer. CEO
Turnover and Retention Light: Retaining Former CEOs on the
Board.
William Tayler, Robert Bloomfield. Norms, Conformity, and
Controls.
Ranjani Krishnan, Michelle Yetman. Institutional Drivers of
Reporting Decisions in Nonprofit Hospitals.
Shujun Ding, Philip Beaulieu. The Role of Financial Incentives in
Balanced Scorecard-Based Performance Evaluations: Correcting
Mood Congruency Biases.
Robert Libby, Kristina Rennekamp. Self-Serving Attribution Bias,
Overconfidence, and the Issuance of Management Forecasts.
David Larcker, Anastasia Zakolyukina. Detecting Deceptive
Discussions in Conference Calls.
Karen Sedatole, Dimitris Vrettos, Sally Widener. The Use of
Management Control Mechanisms to Mitigate Moral Hazard in
the Decision to Outsource.
Dennis Campbell. Employee Selection as a Control System.
Clara Xiaoling Chen, Tatiana Sandino. Can Wages Buy Honesty?
The Relationship Between Relative Wages and Employee Theft.
Itay Kama, Dan Weiss. Do Earnings Targets and Managerial
Incentives Affect Sticky Costs?
Jongwoon (Willie) Choi, Gary Hecht, William Tayler. Strategy
Selection, Surrogation, and Strategic Performance Measurement
Systems.
Raghavendra Rau, Jin Xu. How Do Ex Ante Severance Pay
Contracts Fit into Optimal Executive Incentive Schemes?
Victor Maas, Marcel Van Rinsum. How Control System Design
Influences Performance Misreporting.
Isabella Grabner, Frank Moers. Managers’ Choices of Performance
Measures in Promotion Decisions: An Analysis of Alternative Job
Assignments.
Kevin Murphy, Tatiana Sandino. Executive Pay and ‘‘Independent’’
Compensation Consultants.
Brian Cadman, Mary Ellen Carter, Stephen Hillegeist. The
Incentives of Compensation Consultants and CEO Pay.
Jan Bouwens, Peter Kroos. Target Ratcheting and Effort Reduction.
(continued on next page)
182 Krishnan

TABLE 1 (continued)
Date, Volume, Issue, Pages Author(s) and Title
June 2012, 53 (3): 592–611 Sunil Dutta, Qintao Fan. Incentives for Innovation and Centralized
versus Delegated Capital Budgeting.
July 2013, 56 (1): 19–39 Anna Costello. Mitigating Incentive Conflicts in Inter-Firm
Relationships: Evidence from Long-Term Supply Contracts.
This is based on my assessment of articles that fit within the following definition: ‘‘A fundamental purpose of managerial
accounting is to enhance firm value by ensuring the effective and efficient use of scarce resources’’ (Sprinkle and
Williamson 2007, 419).

majority of the community of scholars that studied organizations (i.e., scholars in business,
economics, and other associated fields), would not object to Simon’s (2000, 751) observation that
‘‘the vast bulk of our economy’s activity takes place within the walls of individual large business
corporations, not in markets’’ and that our goal as researchers should be to understand the factors
that provide ‘‘organizations’ [sic] the ability to coordinate complex activities efficiently, and at far
higher levels than markets can attain.’’ I have trouble therefore in assigning ‘‘mainstream’’ status to
journals that primarily study the role of regulated and aggregated accounting information in markets
and ‘‘niche’’ status to journals that primarily study the coordination of activities within the
organization.
Another issue that I must quibble with, and unfortunately I hear it far too often, is the notion of
‘‘building bridges.’’ According to the Oxford dictionary, a bridge is ‘‘A structure carrying a road,
path, railroad, or canal across a river, ravine, road, railroad, or other obstacle.’’ Crossing a bridge is
therefore necessary when (1) a destination is away from the current point of the traveler, and (2)
there is an obstacle in between. I do not see why management accountants need to build a bridge to
connect to other accounting areas when we are already co-located in the same premises.

FUTURE DIRECTIONS FOR MANAGEMENT ACCOUNTING RESEARCH

The panel has provided ample food for thought. Shields (2015) provides an excellent summary
of management accounting topics where we have established knowledge. I believe that the Shields
(2015) summary misses two topics, which are likely to be crucial, especially in the design of
accounting and control systems for the new generation of companies.

Cost Behavior
Regardless of whether we gain or lose ground to operations, finance, or marketing researchers
(Bloomfield 2015; Labro 2015), we will always have cost accounting. A heartening trend is that a
solid body of accounting research has emerged in the area of cost behavior. A hallmark of this area
is that it uses archival, analytical, field, and experimental methods to examine the various aspects of
cost as described below:
1. Demand Uncertainty: Analytical evidence suggests that when there is demand uncertainty,
firms balance the sunk cost of idle capacity with the higher cost of procuring capacity
resources on short notice, which influences their cost functions (Banker and Hughes 1994;
Balachandran, Balakrishnan, and Sivaramakrishnan 1997; Balakrishnan and Sivaramak-
rishnan 2002; Göx 2002). Research in this area finds evidence that under conditions of
demand uncertainty, accounting signals can provide sufficient information about the economic
benefits associated with product planning and capacity investment decisions. These decisions
have major implications for cost behavior, which has been calibrated in the literature.

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TABLE 2
Citation Analysis of Articles Published during the Period 2000–2014
Year Google Scholar
Title Authors Published Citations
Journal of Accounting Research
The Economic Consequences of Christian Leuz, Robert Verrecchia 2002 1,972
Increased Disclosure.
International Accounting Standards Mary Barth, Wayne Landsman, 2008 1,397
and Accounting Quality. Mark Lang
Errors in Estimating Accruals: Paul Hribar, Daniel Collins 2002 1,264
Implications for Empirical
Research.
Journal of Accounting & Economics
Information Asymmetry, Corporate Paul Healy, Krishna Palepu 2001 3,537
Disclosure, and the Capital
Markets: A Review of the
Empirical Disclosure Literature.
The Economic Implications of John Graham, Campbell Harvey, 2005 2,882
Corporate Financial Reporting. Shiva Rajgopal
Performance Matched S. P. Kothari, Andrew Leone, 2005 2,605
Discretionary Accrual Measures. Charles Wasley
The Accounting Review
The Quality of Accruals and Patricia Dechow, Ilia Dichev 2002 2,333
Earnings: The Role of Accrual
Estimation Errors.
Costs of Equity and Earnings Jennifer Francis, Ryan LaFond, Per 2004 1,449
Attributes. Olsson, Katherine Schipper
The Relation between Auditors’ Richard Frankel, Marilyn Johnson, 2002 1,278
Fees for Nonaudit Services and Karen Nelson
Earnings Management.
Contemporary Accounting Research
Voluntary Disclosure and Equity Mark Lang, Russell Lundholm 2000 645
Offerings: Reducing Information
Asymmetry or Hyping the
Stock?
The Walk-Down to Beatable Scott Richardson, Siew Hong Teoh, 2004 638
Analyst Forecasts: The Role of Peter Wysocki
Equity Issuance and Insider
Trading Incentives.
Audit Fees: A Meta-Analysis of David Hay, W. Robert Knechel, 2006 631
the Effect of Supply and Norman Wong
Demand Attributes.
Review of Accounting Studies
Earnings Surprises, Growth Douglas Skinner, Richard Sloan 2002 1,213
Expectations, and Stock Returns,
or Don’t Let an Earnings
Torpedo Sink Your Portfolio.
(continued on next page)

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TABLE 2 (continued)
Year Google Scholar
Title Authors Published Citations
Over-Investment of Free Cash Scott Richardson 2006 915
Flow.
Assessing the Probability of Stephen Hillegeist, Elizabeth 2004 796
Bankruptcy. Keating, Donald Cram, Kyle
Lundstedt
Accounting, Organizations and Society
Management Control Systems Robert Chenhall 2003 1,809
Design Within Its Organizational
Context: Findings from
Contingency-Based Research and
Directions for the Future.
Control of Inter-Organizational Henri Dekker 2004 733
Relationships: Evidence on
Appropriation Concerns and
Coordination Requirements.
The Relations among Sulaiman Al-Tuwaijri, Theodore 2004 729
Environmental Disclosure, Christensen, K. E. Hughes
Environmental Performance, and
Economic Performance: A
Simultaneous Equations
Approach.
Management Accounting Research
The Balance on the Balanced Hanne Nørreklit 2000 1,134
Scorecard: A Critical Analysis of
Some of Its Assumptions.
Conceptualizing Management John Burns, Robert Scapens 2000 1,065
Accounting Change: An
Institutional Framework.
An Institutional Perspective on Stan Brignall, Sven Modell 2000 566
Performance Measurement and
Management in the ‘‘New Public
Sector.’’
Journal of Management Accounting Research
Innovations in Performance Christopher Ittner, David Larcker 2001 1,273
Measurement: Trends and
Research Implications.
Linking Balanced Scorecard Zahirul Hoque, Wendy James 2000 737
Measures to Size and Market
Factors: Impact on
Organizational Performance.
Communicating and Controlling Mary A. Malina, Frank Selto 2001 690
Strategy: An Empirical Study of
the Effectiveness of the Balanced
Scorecard.

This is based on a search of Google Scholar conducted during January 2015.

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Management Accountant—What Ails Thee? 185

TABLE 3
Self-Referential Percentage in Journal Articles
Percentage Highest/Next Highest
Citations of Journal Cited
Journal Issue Article Same Journal (%)
AOS 2015, 41 Accounting Fundamentals and 14.74% Accounting, Auditing &
(February): 1–20 Accounting Change: Boulton Accountability (3.2%)
and Watt and the Springfield
Armory. Steven Toms and Richard
K. Fleischman
CAR 2014, 31 (4): 949– Being a Successful Professional: 3.5% AOS (11.6%)
981 An Exploration of Who
Makes Partner in the Big 4.
Chris Carter and Crawford
Spence
JAE 2015, 59 (2/3): Strategic Silence, Insider 15% JAR (10%), The Journal
119–142 Selling, and Litigation Risk. of Finance (10%)
Mary Brooke Billings and
Matthew C. Cedergren
JAR 2015, 23 (1): 1–47 Inside the ‘‘Black Box’’ of Sell- 23.45% JAE (19.75%)
Side Financial Analysts.
Lawrence D. Brown, Andrew
C. Call, Michael B. Clement,
and Nathan Y. Sharp
JMAR 2014, 26 (2) The Multiple Roles of the 0 AOS (9.4%)
Finance Organization:
Determinants, Effectiveness,
and the Moderating Influence
of Information
System Integration.
Hsihui Chang and Christopher D.
Ittner
MAR 2014, 25 (4): 251– An Exploratory Study of the 8.33% AOS (10.19%)
270 Reciprocal Relationship
between Interactive Use of
Management Control Systems
and Perception of Negative
External Crisis Effects.
Robert Janke, Matthias D.
Mahlendorf, and Jürgen
Weber
RAST 2015, 20 (1) Does the Director Election 0 The Journal of Finance
System Matter? Evidence (11.11%)
from Majority Voting.
Yonca Ertimur, Fabrizio
Ferri, and David Oesch
(continued on next page)

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TABLE 3 (continued)
Percentage Highest/Next Highest
Citations of Journal Cited
Journal Issue Article Same Journal (%)
TAR 2015, 90 (1) The Economic Consequences of 12.5% The Journal of Finance
Financial Restatements: (11%)
Evidence from the Market for
Corporate Control.
Amir Amel-Zadeh and Yuan
Zhang

This is based on the lead article in the latest published issue of the relevant journal as of January 2015.

2. Cost Structure: Cost structure has implications for firm performance. A firm that has a larger
proportion of fixed costs arising from committed resources is exposed to higher risk of being
unable to break even (Horngren et al. 2012). Recent studies have explored the drivers and
outcomes of various types of cost structures. For example, Banker, Byzalov, and Plehn-
Dujowich (2014) provide analytical and empirical evidence that higher demand uncertainty
is associated with a less elastic short-run cost structure. Holzhacker, Krishnan, and
Mahlendorf (2015b) show that firms are likely to alter resource procurement choices related
to outsourcing, leasing equipment, and hiring contract labor to increase cost elasticity in
response to demand uncertainty and financial risk.
3. Cost Asymmetry: Research using data from a variety of industries finds robust evidence of a
differential response of cost to decreases in volume relative to increases in volume. This
asymmetry (labeled cost stickiness) was first documented with SG&A costs (Anderson,
Banker, and Janakiraman 2003) and subsequently in operating costs (Calleja, Steliaros, and
Thomas 2006). Research has examined the drivers and moderators of sticky costs such as
regulation and ownership (Holzhacker et al. 2015a), capacity utilization (Balakrishnan,
Peterson, and Soderstrom 2004), managerial incentives to manage earnings (Dierynck,
Landsman, and Renders 2012), earnings targets (Kama and Weiss 2013), the strategic
importance of the cost (Balakrishnan and Gruca 2008), and corporate governance (Chen, Lu,
and Sougiannis 2012). Weiss (2010) finds that sticky costs have implications for analyst
forecasts.6
4. Regulation: Evidence indicates that substantial costs of regulatory compliance can be hidden
in other accounts, especially if firms use traditional, volume-based allocation systems instead
of refined allocation systems (Joshi, Krishnan, and Lave 2001). Empirical research also finds
that firms attempt to change their firms’ cost structures in response to regulation. For
example, Kallapur and Eldenburg (2005) find that Washington state hospitals increased their
share of variable costs to total cost in response to increased operating risk arising from a
change in regulation from cost-plus to fixed price. Holzhacker et al. (2015a) find that fixed-
price regulation influences German hospitals to increase the elasticity and reduce the
asymmetry of their cost structures.

6
For a debate on empirical testing to detect sticky costs from other types of cost behavior see Balakrishnan, Labro,
and Soderstrom (2014); Banker and Byzalov (2014); and Shust and Weiss (2014).

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Governance and Monitoring

Although there is little consensus on what it means and includes, and who should own or not
own the topic, if we broadly define governance as ‘‘mechanisms to mitigate agency problems’’
(Bushman and Smith 2001, 238), then it would be fair to conclude that managerial accounting
research has explored many nuances of the governance function.7 In the realm of CEO
compensation, there is evidence of an association between enterprise complexity and CEO
compensation that is moderated by the potential for the CEO to divert resources for private benefit
(Black, Dikolli, and Dyreng 2014). Research has explored internal and external control
mechanisms to mitigate CEO horizon problems. These mechanisms include adjusting the weights
placed on various performance measures including financial, nonfinancial, and forward-looking
measures (Bouwens and Van Lent 2007; Dikolli 2001; Cheng 2004; Dikolli, Kulp, and Sedatole
2013). Interestingly, the intensity of CEO monitoring systems decreases over the tenure of the CEO
because periodic accounting signals reduce the uncertainty about the CEO’s ability and effort
propensity (Dikolli, Mayew, and Nanda 2014). In designing compensation contracts, it is important
to note that career concerns of managers can also have unexpected externalities (Autrey, Dikolli,
and Newman 2007), and that these career concerns may differ in nonprofit versus for-profit
organizations. For example, nonprofits managers’ incentives to influence external perceptions about
their ability to raise revenues can reduce their focus on increasing efficiency and distort decisions
away from the donors’ best interests (Arya and Mittendorf 2015).
Monitoring mechanisms can also be included under the umbrella of governance because they
essentially deal with agency problems. Campbell, Epstein, and Martinez-Jerez (2011) find evidence
that determining the appropriate level of monitoring is tricky. One the one hand, tight monitoring
systems can mitigate agency losses, on the other hand, these systems can reduce employee learning.
Therefore, any management control system such as compensation and promotion systems designed
to influence employee decision making and induce goal congruence should also take into account
the consequences of these systems on employee learning (Campbell 2008). Monitoring by peers can
also serve as a mechanism to mitigate incentive problems. Hannan, Towry, and Zhang (2013)
examine the effect of mutual monitoring on effort in the presence of tournament-based
compensation and find that mutual monitoring decreases (increases) effort when employees have
a propensity to collude (compete).
It is important for research to examine monitoring and target-setting mechanisms for
employees at middle and lower levels in the organization. The vast majority of employees in an
organization are not CEOs. Indeed, the Fortune 500 Corporations have 500 CEOs, but over 26
million rank-and-file employees (http://money.cnn.com). Management accounting has made strides
in this regard and studied topics like target setting, performance pay, and employee creativity.
Interesting insights have emerged. Bouwens and Kroos (2011) study retail store managers and find
evidence of real earnings management via a reduction in sales activity in response to target
ratcheting. Webb, Williamson, and Zhang (2013) examine the tradeoff between target difficulty and
employees’ ability to identify production efficiencies. On the one hand, goal theory predicts that
attaching performance pay to challenging targets can motivate productive effort; on the other hand,
performance pay and challenging targets can hamper the discovery of production efficiencies that
require outside-the-box thinking. Their results indicate that individuals with easier targets and fixed

7
Although the Bushman and Smith (2001) study is titled ‘‘Financial Accounting Information and Corporate
Governance,’’ it does not trouble me to classify their definition of governance as relevant to management
accountants. Financial accounting signals are routinely used by firms, along with other signals, in the design and
implementation of budgeting, control, and reporting systems. Financial accounting signals are the products of
management accounting systems, which generate, measure, and aggregate signals for internal and external use.

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188 Krishnan

wages identified a greater number of production efficiencies but had lower productivity per
production efficiency relative to individuals who had more difficult targets or performance pay.
Research also indicates that fostering employee creativity via incentives may not be efficacious in
some situations (Kachelmeier, Reichert, and Williamson 2008; Kachelmeier and Williamson 2010).
Governance of inter-firm transactions is also an area that has been explored in management
accounting research (see Anderson and Sedatole [2003] for a review). Market-based controls such
as formal contracts are not the only form of governance. Indeed, evidence indicates that firms use
bureaucratic-based controls such as rules and standard operating procedures, as well as trust-based
controls such as relational contracting, collaborative goal setting, and information sharing.
Moreover, relational contracting can have consequences for transaction costs (Anderson, Glenn,
and Sedatole 2000). Relational contracting and trust-based controls can also generate switching
costs for outsourcing firms because of the need to reinvest in reestablishing controls to manage new
suppliers. (Phua, Abernethy, and Lillis 2011). The design and structure of control systems when a
firm is considering outsourcing, or in the presence of decentralization when transfer prices have to
be determined, is an important topic for organizations, and management accountants have provided
important insights into appropriate organizational design (Arya and Mittendorf 2010).

Accounting and Analytics

Big Data is the new reality and most companies must find a way to manage more data than they
can potentially even fathom. Big Data is unstructured and not amenable to traditional methods. Our
colleagues in information systems, marketing, and management have employed methods and
techniques to study Big Data, and insights from their research are beginning to emerge. For
example, Management Information Systems Quarterly (MISQ), Marketing Science, and
Management Science announced special issues on data analytics, business analytics, and Big
Data. Big Data is going to fundamentally alter the nature of decision making in organizations and
markets, and companies in all industries are coming to realize that they are tech companies (PwC
2013). Information that took days or weeks to be transmitted to market participants is now diffused
within a matter of seconds because of the power of social media and cloud computing. The sources
of information are changing, the quantity of information is exploding, and types of information for
decision making are fundamentally altering. The Millennials’ approach to the trustworthiness of
information sources is starkly different from the previous generations’. Instead of being behind the
curve, it may be a good idea for accountants to jump into the fray and study these topics
systematically.
CONCLUSIONS
Simon (1991, 42) remarks, ‘‘The economies of modern industrialized society can be more
appropriately termed as organizational economies than market economies.’’ Management
accounting is the study of decision making within the organization. Management accounting
includes the study of how market participants use information produced by the firms’ decision
makers; therefore I echo Bloomfield (2015) that managerial accounting ‘‘includes financial
accounting as a subfield, rather than the other way around,’’ and it ‘‘remains the one course every
business student should take.’’ I also agree with Salterio (2015) that a journal that predominantly
focuses on the study of how market participants react to financial accounting information can be
legitimately considered a niche journal relative to a journal that studies the role of information in
decision making within the organization.
How can we make certain that we continue to play a prominent role in the practice, research,
and teaching of accounting? All of the panelists have provided excellent guidance in this regard. As
Van der Stede (2015) states, we need to ensure that ‘‘we conduct properly executed academic
studies on practice-relevant issues broadly conceived that yield potentially applicable insights.’’ He

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Management Accountant—What Ails Thee? 189

elucidates that this implies, ‘‘usable knowledge, as opposed to academically self-referential

knowledge. Research for practice, rather than research as a practice. (Merchant and Van der Stede
(2006).’’ This includes research that can be replicable as argued by Shields (2015), with the caveat
that we must not hold replicability as a gold standard for acceptance of insights from a study. It is
true that replicability assists in assessing generalizability. Further, the potential for replicability can
act as an audit mechanism and provide checks and balances. However, attaching value judgments to
easily replicable research as ‘‘good’’ and others as ‘‘not good’’ places field studies and studies that
use proprietary data at a disadvantage relative to studies that use experimental and archival
techniques. We must keep in mind the fact that many valuable insights into how accounting and
control systems are designed, processed, adapted, and used in organizations have been generated
using field and proprietary data.
Like Shields (2015), I am optimistic that the next generation of management accountants will
be celebrating 50 years of JMAR with equal if not more fervor and gusto!
What is freedom of expression? Without the freedom to offend, it ceases to exist.
–Salman Rushdie (1981)

—Ranjani Krishnan
Michigan State University

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