Knowledge that Transforms

This study explores socio-cultural aspects of management control in a Chinese Indonesian manufacturing company. Ethnographic data collection methods were combined with grounded theory data analysis to explore how cultures, ethnic differences, history, politics, and commercial considerations shaped management controls. A combination of emic and etic methods were used to generate grounded comparisons with nomethetic research on culture and control in a cultural contingency tradition. Chinese Indonesians own most Indonesian private domestic capital despite being an ethnic minority (3–4% of population) and having suffered extensive discrimination. The case links the Chinese businessmen’s values to socialisation during childhood and then examines how their interaction with the Javanese culture of pribumi employees, ethnic tensions between employers and employees, and organisational and economic factors affected management control. Consistent with previous cultural contingency research the Chinese owners’ preferences resided with controlling behaviour through personnel and behavioural controls, low budget participation, centralisation, subjective rather than objective controls, and tentatively, few rewards tied to results and the use of group rewards. Whether Chinese managers exhibited longer term orientations concerning planning and rewards could not be ascertained. However, ethnic tensions and commercial considerations mitigated the owners’ ability to control according to cultural preferences. Based upon these findings reflections on past research and suggestions for further developments are made with respect to methods, methodology, and incorporating a broader range of theories and issues, especially ethnicity, politics, and history.

The lock-in effect proposes that capital gains taxes represent transaction costs that increase the reservation price for security owners and, ceteris paribus, reduce trading volume. Consistent with the lock-in effect, previous empirical research documents price and reactions to enacted changes in the capital gains tax rate. We investigate whether the volume hypothesis predicted by the lock-in effect extends to corporate acquisition activity. In particular, we analyze whether aggregate corporate acquisition activity is inversely associated with shareholder capital gains tax rates. We measure quarterly corporate acquisition activity from 1973 through 2001 using (1) the percentage of traded firms acquired in a calendar quarter and (2) the percentage of market value of traded firms acquired in a calendar quarter. In supplemental analysis, we measure acquisition activity at the industry level (i.e., as the percentage of firms and percentage of market value acquired by industry annually). In each analysis we model acquisition activity as a function of the maximum long-term capital gains tax rate for individuals and other macroeconomic factors previously hypothesized to be associated with acquisition activity. Consistent with a lock-in effect for corporate acquisitions, we find a significant negative association between corporate acquisition activity and the capital gains tax rate whether we measure acquisition activity in the aggregate or at the industry level. In addition, we find that this negative association is attributable to increased (decreased) taxable acquisition activity during periods of low (high) capital gains tax rates. These results suggest that, ceteris paribus, capital gains taxes represent significant transaction costs that influence the level of corporate acquisition activity.

Auditor-client negotiation about difficult client accounting issues involves both the auditor and the client. On the client side, the Chief Financial Officer (CFO) plays a central role in the financial reporting process, yet is rarely the focus of academic study. This paper reports how a sample of Canadian CFOs viewed the negotiation process and context, using an experiential questionnaire to build on the negotiation model developed and demonstrated for the auditor side of the negotiation by Gibbins, Salterio, and Webb 2001, and corroborated by a comparison of common questionnaire items across auditor and CFO samples by Gibbins, McCracken, and Salterio 2005. The CFOs saw negotiation with the auditors as a consequence of change in accounting and disclosure standards or personnel influential to their financial reporting, or business changes, such as, new business deals or acquisitions. Negotiation was thrust upon the CFO, and the CFO then had to manage it. The CFOs informed other management (such as the CEO) and was aware of their interests, but did not generally seek their help. Informing the Board or the audit committee of the issue was much less frequent. The issue being negotiated was seen as complex, requiring research and analysis, and dependent on knowledge and expertise, with the result more likely reflecting form over substance (a result some CFOs suggested was more agreeable to the auditor than to the CFO).