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Libby, T. and J. H. Waterhouse. 1996. Predicting change in management accounting systems. Journal of Management Accounting Research (8): 137-150.

Summary by Anita Reed
Ph.D. Program in Accounting
University of South Florida, Spring 2002

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The authors are interested in exploring change in management accounting systems related to changes in organizations that result from adoption of new product costing systems, strategic cost analysis, quality management and other innovations. Management accounting systems are conceptualized as being dependent on organizational structure and context, which may promote or impede the rate of change.


Contingency theory perspective, innovation diffusion.


Can change in management accounting and control systems (MACS) be predicted by organizational and environmental factors? Change in MAS is expected to be associated with a more intensely competitive environment, a decentralized organizational structure, a larger size and greater organizational capacity to learn.


The sample for the study consisted of 70 organizations within the SIC group 20-39 (manufacturers) with over 100 employees located in Southwestern Ontario, Canada. Three companies were eliminated due to location or ceasing of operations. A total of 24 companies participated in the study, a response rate of 34%. Non-response bias was tested and found not significant. The individual respondents within the sample companies were at the assistant controller level or above.


Exploratory study using survey results collected in the summer of 1994 related to activity for the three-year period 1991-1993. Personal mail contact was followed by a telephone interview. Respondents were faxed the questionnaire and the data collected via the telephone interview. Regression analysis of the data collected was performed to determine predictive ability. The independent variables identified as potentially relevant predictors of change (the dependent variable) to management accounting and control systems (MACS) are: decentralization, size, competition and capacity for change. Technology was originally included in the study, but acceptable levels of reliability were not obtained so the measure was dropped. The variables are defined as follows:

Change in MACS: The sum of the reported number of changes during the period 1991-1993. A base list of 23 different MAS was provided to the respondents, to which they could add items.

Intensity of Competition: The perceived intensity of competition in five areas (raw materials, technical personnel, selling & distribution, quality & variety of products, and price) was measured on a scale of 1 (negligible) to 5 (extremely intense). Another five point scale was used for the importance of each area where 1 represents not important and 5 represents extremely important. Then the overall measure of competition was calculated as the sum of the square roots of the ratings for importance multiplied by the ratings for intensity (based on Khandwalla 1977).

Decentralization: Measured using an abbreviated form of the Aston concentration of authority scale, essentially discovering the most junior level of job that has the authority to make decisions on a list of operating policies. The sum of scores assigned to each policy indicates the degree of decentralization, with higher scores indicating more decentralization.

Size: Defined as the number of employees working for the organization.

Organizational capacity to learn: Defined as the amount or extent of existing management accounting expertise and measured by the existing number of MACS the organization had in 1993.

The regression analysis utilized the average scores for decentralization and size over the three-year period.

The regression model is as follows (p.145):

NCHANGE = a0 + b1COMP+ b2DECEN + b3SIZE + b4CAP


The model explains 16 percent of the variance in the dependent variable. The only significant independent variable is organizational capacity to learn, represented by CAP, thus supporting a positive relationship between capacity for change and changes in MACS. However, this relationship may only indicate that the more systems an organization has, the more changes will occur regardless of other factors. The authors contend this relationship is indicative of evolutionary shifts in MACS, not paradigm or revolutionary shifts. Extended analysis of the components of change indicated that more changes occurred in the decision-making and controlling components of MACS than in the other components of change. Moderate support was found for the relationship between competitive environment and changes in MACS, but none for decentralization. The measure used for decentralization may not be measuring the same dimension of decentralization the authors were attempting to capture.


Four specific limitations are listed by the authors (in addition to the usual limitations associated with survey research): small sample size, cross-sectional study limits ability to study change, respondent were all accountants working as controllers or management accountants and may have limited familiarity with organizational structure and competitive market, and the sample time period may be atypical (a severe recession occurred during 1991-1993).


How and why management accounting systems change over time should be examined using non-cross-sectional methodologies and may be informative.


See the following for a study that replicates this research.

Williams, J. J. and A. E. Seaman. 2001. Predicting change in management accounting systems: National culture and industry effects. Accounting, Organizations and Society 26(4-5): 443-460. (Summary).

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