The Mutual Relationship Between Corporate Governance and Management Accounting: Which Occurs First?

Quang Linh Huynh

doi:10.3844/ajassp.2015.403.410

Abstract

This research focuses on the complicated relationship between Corporate Governance and Management Accounting. On the one hand, good corporate governance structure is a driving force of adopting management accounting techniques in business; on the other hand it is enhanced by the information derived from management accounting techniques. The mutual relationship between corporate governance structure and management accounting has been discussed and examined, but it is investigated separately. The current research investigates this mutual relationship for the publicly listed firms in Vietnam. By applying the advanced models of directed graph searches and directed acyclic graphs, this study examines the mutual relationship in a joint model. The findings confirm that good corporate governance structures are first the causality of adopting management accounting techniques in business. Then, these management accounting techniques will help to result in better corporate governance structures. The results provide researchers as well as managers with a better understanding of the complicated relationship between corporate governance structure and management accounting. This will help the managers build effective management accounting techniques, which match with their corporate governance structures, so that their firms can attain the possible best performance.

Highlights

This research extends the notion of Bhiman (2009) that corporate governance and management accounting are increasingly and inextricably interdependent
The findings indicate that the relationship between corporate governance structures and the adoption of management accounting techniques is complicatedly reciprocated
The findings reveal that Corporate Governance Structure (CGS) affects the adoption of Management Accounting Techniques in business (MAT) at a statistical significance of 0.01 with the 1.304 coefficient

Summary

Introduction

This research extends the notion of Bhiman (2009) that corporate governance and management accounting are increasingly and inextricably interdependent. Corporate governance structure and the adoption of management accounting techniques are both deemed as the causation of firm performance (Mia and Clarke, 1999; Williams and Seaman, 2002; Nicholson and Kiel, 2007; Kaymak and Bektas, 2008). This is similar to the notion of Testa et al (2014) and Sgroi et al (2014) that the introduction of new techniques, tools or processes in an organization can help that organization achieve a competitive advantage over their competitors, which will leads to improved performance

Objectives

Conclusion