Assessing empirical research in managerial accounting: a value-based management perspective$
Christopher D. Ittner*, David F. Larcker
Accounting Department, The Wharton School, University of Pennsylvania, Steinberg Hall-Dietrich Hall, 3620 Locust Walk, Philadelphia, PA19104-6365, USA Received 3 February 2000; received in revised form 11January 2001
Abstract This paper applies a value-based management framework to critically review empirical research in managerial accounting. This framework enables us to place the exceptionally diverse set of managerial accounting studies from the past several decades into an integrated structure. Our synthesis highlights the many consistent results in prior research, identiﬁes remaining gapsand inconsistencies, discusses common methodological and econometric problems, and suggests fruitful avenues for future managerial accounting research. r 2001 Elsevier Science B.V. All rights reserved.
JEL classiﬁcation: D2; J3; L2; M4 Keywords: Managerial accounting; Value-based management; Performance measurement
We thank Lawrence Gordon, S.P. Kothari, Thomas Lys, Michael Shields, JerryZimmerman, and participants at the 2000 Journal of Accounting and Economics Conference for their comments. We also thank the Cap Gemini Ernst & Young Center for Business Innovation, the Consortium for Alternative Reward Strategies Research, iQuantic Inc., and Watson Wyatt & Company for providing data used in the discussion. *Corresponding author. Tel.: +215-898-7786; fax: +215-573-2054. E-mail address:firstname.lastname@example.org (C.D. Ittner). 0165-4101/01/$ - see front matter r 2001 Elsevier Science B.V. All rights reserved. PII: S 0 1 6 5 - 4 1 0 1 ( 0 1 ) 0 0 0 2 6 - X
C.D. Ittner, D.F. Larcker / Journal of Accounting and Economics 32 (2001) 349–410
1. Introduction The past two decades have witnessed considerable change in managerial accounting practice. From its traditionalemphasis on ﬁnancially oriented decision analysis and budgetary control, managerial accounting has evolved to encompass a more strategic approach that emphasizes the identiﬁcation, measurement, and management of the key ﬁnancial and operational drivers of shareholder value (International Federation of Accountants, 1998; Institute of Management Accountants, 1999). A similar evolution has occurredin managerial accounting research. Empirical studies of budgeting and ﬁnancial control practices are giving way to research on a variety of ‘‘new’’ techniques such as activity-based costing, the balanced scorecard, strategic accounting and control systems, and economic value performance measures. Although researchers generally treat these techniques as distinct, companies increasingly areintegrating these various practices using a comprehensive ‘‘value-based management’’ (hereafter VBM) framework. This approach focuses on (1) deﬁning and implementing strategies that provide the highest potential for shareholder value creation; (2) implementing information systems focused on value creation and the underlying ‘‘drivers’’ of value across a company’s business units, products, and customersegments; (3) aligning management processes, such as business planning and resource allocation, with value creation; and (4) designing performance measurement systems and incentive compensation plans that reﬂect value creation (KPMG Consulting, 1999; PricewaterhouseCoopers, 1999). This paper applies a value-based management framework to critically review empirical research in managerial accounting.Given the breadth of managerial accounting research methods and topics, it is impossible for a single paper to adequately summarize the entire ﬁeld. Instead, we limit our review to organization-level studies that use archival or survey data to examine issues related to the VBM perspective. These criteria lead us to exclude most behavioral research, experimental studies, and qualitative case...