A Comparative Model of Firm Size and the Role of Management Control Systems in the Demand for Delegation: Evidence from Chinese Manufacturers

Abstract

The management control systems (MCS) in Chinese manufacturers have come under increased attention. We examine the relation between the promotion-prospects-based incentives and three major components of performance measurement systems (i.e., goal-setting, feedback and goal-upgrade activities), and its consequent effects on managers’ attitudes toward top management’s delegation or involvement in 38 Hong Kong-owned manufacturing firms operating in the Pearl River Delta region. The study uses structural equation modeling analysis to present a comparative model of firm size and incorporates the effects of firm size on the MCS, which, in turn, affect the demand for top management’s delegation of decision-making authority. We find that managers in SME are more inclined to demand for top management’s delegation in both promotion-based incentives and goal-setting activities, whereas they desire top management’s involvement in feedback activities. This indicates that managers in SMEs prefer to set target goals without top management’s involvement, while they demand top management to be involved in evaluating whether target goals are accomplished. In contrast, we find that managers in large firms do not express their demand for top management’s delegation in their use of MCS. Overall, our findings suggest that SMEs in China need to consider the demand for top management’s delegation or involvement in the design of MCS.