Leadership Styles and the Use of Accounting Performance Measures: Test of A Causal Model Using PLS

Abstract

Despite the importance of both leadership behavior and performance measurement for management control, the management and management accounting literatures provide little evidence on the relationship between the two, and has not resolved whether they are complements or substitutes. In this paper, we explore direct and indirect relationships between leadership behavior, working environment, the use of performance measures and subordinates' work-related attitudes. In particular, we examine whether uncertainty (task versus environmental) affects leadership behavior (initiating structure versus consideration) and the use of performance measures (accounting based versus subjective), and whether these factors subsequently affect selected work-related attitudes (goal clarity, efficacy and evaluation fairness). Hypotheses are developed and tested using Partial Least Squares (PLS), with survey data from 196 middle-level managers in 11 organizations. Results indicate that leadership behavior has direct effects on subordinates' work-related attitudes, as well as indirect effects through the use of accounting (rather than subjective) performance measures. Findings also show a mediating effect of accounting (rather than subjective) performance measures in the relationship between environmental uncertainty and work-related attitudes. Overall, the effects of the use of performance measures on subordinates' attitudes seem to outweigh the effects of leadership behavior.