Management Control Systems Cooperation A

Management Accounting Research 17 (2006) 315–339
Management control systems, cooperation and performance in

strategic supply relationships: A survey in the mines
Habib Mahama ∗
School of Accounting, University of New South Wales, Sydney 2052, Australia
Abstract
This study investigates the relationships between two management control systems (performance measurement
systems and socialisation processes) and cooperation and how that translates into relationship performance in
strategic supply relationships. Drawing on the existing literature, we develop a theoretical model that shows the
predicted relationships between our theoretical constructs. We test the theoretical model using partial least squares
(PLS) on survey data collected from the Australian mining and resources sector. The results show direct relationships
between performance measurement systems (PMS) and three dimensions of cooperation (information sharing,
problem solving and willingness to adapt to changes) and an indirect relationship between PMS and restraint from
use of power. Also, PMS is found to have a facilitating role in socialisation processes. The predicted association
between socialisation processes and cooperation was partially supported. Also, three dimensions of cooperation
(problem solving, willingness to adapt to changes and restraint from use of power) were found to be directly
associated with relationship performance while information sharing had indirect relationship with performance.
The results show a positive association between PMS and relationship performance. Finally, the results indicate
that socialisation processes are indirectly related to performance. The results have important implications for both
management control research and management control systems design.
© 2006 Elsevier Ltd. All rights reserved.
Keywords: Management control systems; Performance; Performance measurement systems; Socialisation processes; Strategic
supply relationships
1. Background
The importance of developing closer and longer-term relationships with key suppliers of goods and
services has increasingly been recognised by practitioners and academics alike (Ring and Van de Ven,
∗
Tel.: +61 2 9385 5843; fax: +61 2 9385 5925.
E-mail address: h.mahama@unsw.edu.au.
1044-5005/$ – see front matter © 2006 Elsevier Ltd. All rights reserved.
doi:10.1016/j.mar.2006.03.002
316 H. Mahama / Management Accounting Research 17 (2006) 315–339
1992; Kelly, 1995; Domberger, 1996; Van der Meer-Kooistra and Vosselman, 2000; Langfield-Smith
and Smith, 2003). Practically, there has been rapid growth in the number and significance of these
relationships as organisations streamline their operations and contract out many of their functions (Quinn
et al., 1990; Ring and Van de Ven, 1992; Lacity and Hirschheim, 1993a,b). Generally referred to as
alliances or interfirm networks, the growing number of these relationships stems from a general perception
that they enable organisations to secure valued resources and technology at potentially lower risk than
corporate acquisitions (Ireland et al., 2002). Consequently, they have been accorded strategic importance
in organisational decision making as such relationships now come into existence as part of the overall
organisational strategy. Despite the potential to improve quality, flexibility and cost through alliances,
there is documented evidence of alliance failure (Spekman and Isabella, 2000; Ireland et al., 2002;
Langfield-Smith and Smith, 2003). The failure of alliances is partly attributed to inadequate level of
cooperation among alliance members (Smith et al., 1995).
Many academic commentators consider cooperation to be crucial to the success of alliance relationships
(Browning et al., 1995; McAllister, 1995; Chen et al., 1998). Cooperation, it is argued, maximises the
mutual benefits of exchange participants by bringing about effective co-ordination of activities, pooling
of knowledge and complementary strength, real-time resolution of conflicts and equitable distribution
of benefits (Browning et al., 1995; Smith et al., 1995; Faerman et al., 2001). Though alliances are often
referred to as cooperative relationships, cooperation should not be assumed to exist in all alliances simply
because two or more organisations are engaged in a collective activity (Das and Teng, 1998). For Browning
et al. (1995) conditions for cooperation need to be mobilised and enacted for cooperation to emerge.
Smith et al. (1995) argue that cooperation can emerge if adaptable arrangements are put in place to
assure participants of continuity of the relationships, make clear the benefits of cooperation and to make
them recognise the need to reciprocate for any benefits derived from the relationship. In his theory of
organising and managerial processes, Barnard (1938, cited in Chen et al., 1998) argues that the induce-
ment, facilitation and maintenance of cooperation constitute the essence of organising and managing.
This suggests a role for management control systems (MCS) in fostering cooperation among exchange
participants. A number of accounting researchers have long recognised the potential role of MCS in
the management of alliance performance (Gietzmann, 1996; Hopwood, 1996; Tomkins, 2001) and some
accounting research on alliances has started emerging (Frances and Garnsey, 1996; Van der Meer-Kooistra
and Vosselman, 2000; Langfield-Smith and Smith, 2003; Dekker, 2004; Hakansson and Lind, 2004; Seal
et al., 2004). Despite these efforts, our understanding of the link between MCS and cooperation remains
underdeveloped. This paper aims to contribute to this emerging research by empirically examining the
impact of MCS on cooperation among alliance participants. More specifically, the paper focuses on how
cooperation is mobilised and enacted in one particular type of alliance—strategic supply relationships
(SSRs).1 The paper also examines the link between cooperation and SSRs performance.
To investigate how MCS are implicated in cooperation and performance in SSRs, we conducted a
survey of supply relationships in the Australian mining and resources sector. We predicted that two MCS
(performance measurement systems (PMS) and socialisation processes) will be positively associated
with cooperation and the results provide support for direct positive relationships between PMS and three
dimensions of cooperation (information sharing, problem solving and willingness to adapt to changes)
and an indirect relationship between PMS and restraint from use of power (through information sharing).
1
Strategic supply relationship is used loosely by practitioners to refer to longer-term buyer–supplier relationships that involve
large amount of spend and are critical to the market performance of the parties.
H. Mahama / Management Accounting Research 17 (2006) 315–339 317
Partial support is provided for the association between socialisation processes and cooperation. Further-
more, the results provide support for direct positive relationships between three dimensions of cooperation
(problem solving, willingness to adapt to changes and restraint from use of power) and relationship per-
formance and an indirect positive relationship between information sharing and performance (through
restraint from use of power). We also expected a positive association between PMS and relationship per-
formance and the results confirmed this prediction. There was no significant direct relationship between
socialisation processes and performance; the relationship was indirect through information sharing and
restraint from use of power.
The paper makes a number of contributions to the literature. First, our results indicate that PMS are
important to the mobilisation and enactment of cooperation in SSRs. The significance of PMS is also
demonstrated by its direct and indirect impact (through three dimensions of cooperation) on relationship
performance. Second, the study highlights the intermediate role of information sharing in the successful
management of interfirm relationships. More so, the results foreground the importance of socialisation
processes to information sharing and thus reinforce the view that control mixes may be useful in managing
interfirm relationships. Third, the paper highlights the importance of power relations in SSR. Finally, the
results also demonstrate the need for partners in SSRs to cooperate, given that cooperation positively
impacts on relationship performance.
The remainder of the paper is structured as follows: the next section provides an introductory note on
SSRs. We draw on extant literature to develop our theoretical model and testable hypothesis in Section
3. Section 4 presents the research methods and results of the study. The final section concludes the study,
discusses the limitations of the study and provides directions for future research.
2. A brief note on strategic supply relationship
SSRs occur when separate legal entities, constituting themselves into buyers and suppliers, adopt a
high level purposeful exchange to maintain inter-organisational relationships over an extended period of
time, in which both parties may have the power to shape its nature and future direction (Spekman, 1988).
These organisations are autonomous and retain independent decision making powers (Wood and Gray,
1991).
Though buyer–supplier relationships are not new, SSRs are beyond the “normal” market transaction.
They involve the interpenetration of organisational boundaries with the relationships sometimes taking a
network form. SSRs involve recurrent exchanges and are concerned with current and future actions that
are expected to benefit the exchange participants in the long run. As these are not discrete exchanges,
transactions are not viewed in isolation but in relation to past and expected future transactions. They
are also relational in nature in that they focus on the entire relations (social and economic) as it devel-
ops through time (MacNeil, 1978). This recognition of the social in addition to the economic relations
makes the identity of the parties, their relational history, and the establishment of extensive networks of
communication significant features of SSRs.
The uniqueness of SSRs, and contemporary interfirm relationships in general, has attracted the attention
of management control researchers, who examine the reasons for their emergence and their control over
time. Management control researchers who seek to understand the reason for the emergence of SSRs and
other interfirm relationships advance different reasons for the proliferation of this mode of organising
economic activities. The chief reason advanced is that of economic efficiency (Robins, 1987; Heide
and John, 1990; Williamson, 1991; Burgers et al., 1993). The second reason is the need to minimise
dependence and uncertainty in the face of resource insufficiency (Gray and Wood, 1991; Heide, 1994;
Song, 1995; Teng et al., 1995). Yet, institutional theorists explain the drive towards collaboration as being
motivated by institutional isomorphism (Sharfman et al., 1991; Loh and Venkatraman, 1992b; Song,
1995).
There is also an emerging literature on how alliances operate and the roles of management controls in
the ongoing management of the relationships (Berry et al., 1985; Anderson and Weitz, 1992; Heide and
Miner, 1992; Heide, 1994; Birnberg, 1998; Bensaou and Anderson, 1999). In the accounting literature,
researchers have started examining how accounting intertwines with other management control systems
in the processes of managing interfirm relationships (Seal et al., 1999; Mahama, 2000; Van der Meer-
Kooistra and Vosselman, 2000; Langfield-Smith and Smith, 2003; Cooper and Slagmulder, 2004; Dekker,
2004; Hakansson and Lind, 2004; Seal et al., 2004). In particular, accounting researchers have focused on
the design of management control structures and the development of control mixes (formal and informal
controls) within these structures.
Van der Meer-Kooistra and Vosselman (2000), for instance, draw largely from transaction cost eco-
nomics and the trust-based literature to propose three patterns of management control; the cost effective
choice of which is said to depend on transaction characteristics, the transaction environment and the
nature of the transacting parties. Building on Van der Meer-Kooistra and Vosselman model of manage-
ment control, Langfield-Smith and Smith (2003) empirically investigate the choice of the three control
patterns and the relative use of formal and informal (trust-based) controls within those structural patterns.
The Langfield-Smith and Smith (2003) study, also highlight, inter alia, how control patterns gradually
change over time. Dekker (2004) examines issues of control in interfirm relationships and identifies two
control problems that require management attention: the management of appropriation concerns and the
coordination of task. He argues that while designing and implementing formal and informal control may
mitigate these problems, the processes of selecting a partner can prove to be a cost-effective way of
preventing (or at least minimising) the problem.
Though the studies reviewed above improve our knowledge of management control in interfirm rela-
tionships, they do not explicitly consider the implications of management control systems and practices
on cooperation within such relationships. How do these controls (formal and informal, structural or pro-
cessual) foster cooperation among buyers and suppliers engaged in longer-term economic exchanges?
This question is at the heart of the present paper.
3. Theoretical framing and hypothesis formulation
3.1. The concept of cooperation
Cooperation as a social construct is widely used but variously defined. Some scholars define it in terms
of the process by which individuals, groups and organisations jointly undertake to interact for mutual
benefit (Smith et al., 1995). For example, we see the coming together of buyers and suppliers (also joint
venture, etc.) to transact interactive longer-term exchanges being referred to as cooperative relationships.
Here cooperation is conceptualised as a structural (collective) form of organising transactions.
While cooperation requires a collective endeavour, other scholars argue the existence of cooperation
is not determined by the presence of a collective activity but by the dynamics of interactions within the
collective (Chen et al., 1998; Das and Teng, 1998). Although individuals or organisations may interact
to achieve a collective benefit, they may not necessarily share a common interest in paying the cost of
attaining that benefit (Earley, 1989). We believe with Chen et al. (1998) and Das and Teng (1998) that
cooperation should not be assumed simply because there is a collective activity but that it is something that
must be enacted and sustained within the interactions that constitute the collective activity. Cooperation
exists in a relationship not only because the participant’s goals are related but also because they work
together in a co-ordinated way to achieve these goals. Thus, what distinguishes a cooperative activity
from others is the goal directed effort (behaviour) of the participants.
Focusing on how individual actions are joined and synthesised in the process of creating mutual
benefits, academic commentators identify different dimensions of behaviour that constitute cooper-
ation to include information sharing (Tjosvold, 1988; Argyle, 1991; Heide and Miner, 1992); joint
problem solving (Tjosvold, 1988; Heide and Miner, 1992); willingness to adapt to unanticipated
changes (Heide and Miner, 1992) and restraint from the use of power to the disadvantage of other
participants (Heide and Miner, 1992). In this paper, we focus on how these cooperative behaviours
are mobilised and enacted in SSRs. Given that these four dimensions form the basis of our anal-
ysis of cooperation in SSRs, brief explanations of how they constitute cooperation are provided
below.
Information sharing relates to the willingness of participants to exchange important, possibly propri-
etary, information about their relationship among themselves. This may entail engaging each other in
product design, open book arrangements, sharing of cost data and the discussion of future plans (Cannon
and Perreault, 1999). Information sharing enhances cooperation by creating awareness of mutual expec-
tations and capabilities of the parties (Cannon and Perreault, 1999) and developing shared meaning of
actions.
Joint problem solving has long been argued to be crucial to managerial efficiency (Lang et al., 1978).
Cannon and Perreault (1999) argue that cooperation does not imply parties’ acquiescence to each other’s
needs but rather working harmoniously together for the mutual fulfilment of these needs. This requires
treating problems as joint responsibilities and working collaboratively towards resolving those prob-
lems. A focus on working independently on problems is characteristic of situation of low cooperative
behaviour.
Willingness to adapt to changes in the exchange context is crucial to cooperation. Contracting theories
recognise that longer-term exchange relationships have futures and that the futures are uncertain and
complex to the extent that it may be difficult to reduce contractual arrangements into complete and
precisely defined contracts (MacNeil, 1980; Goetz and Smith, 1981). Consequently, the preservation of
an exchange relationship requires parties to adopt flexible responses to unanticipated changes (Heide
and Miner, 1992). Flexible responses to changing conditions imply that parties are able to (re)negotiate
solutions when problems arise that are not completely and comprehensively covered by the original
contractual agreement.
Restraint from the use of power is considered as a strong indication of exchange participants’ predis-
position to cooperate with each other. Power is always present and important in exchange relationships
(MacNeil, 1980). Relational contract theory recognises that exchange inevitably creates dependence and
that parties will exercise control over the resources in their possession in order to acquire power over those
who depend on these resources. Power, according to MacNeil (1980), is “the ability to impose one’s will
on others irrespective of or by manipulating their wish” (p. 32). The dependence or interdependence of
parties on their exchange partners creates power differences whenever the exchange is projected into the
future. Since SSRs involve the interdependence and the projection of exchange relations into the future,
power becomes an important feature of the contractual relations.
3.2. Management control systems
MCS is a broad concept consisting of many elements and used for varying purposes (Merchant, 1985;
Langfield-Smith, 1997; Widener and Selto, 1999). Ansari (1977) defines management controls to include
all those organisational arrangements and actions designed to facilitate the achievement of performance
goals with the least unintended consequences. MCSs are generally conceptualised to have two dimensions;
namely, performance evaluation and socialisation of organisational members (Ansari, 1977; Eisenhardt,
1985; Govindarajan and Fisher, 1990). The performance evaluation aspect focuses on the process of
measuring, evaluating and rewarding performance (Eisenhardt, 1985; Govindarajan and Fisher, 1990).
Central to the performance evaluation function of a MCS are performance measurement systems. PMS
generate and use information that is capable of influencing individuals who are pursuing their self-interest
to also pursue collective interest by aligning their individual interests and periodically assessing how these
aligned interests are met.
The socialisation aspect, on the other hand, focuses on minimizing divergence of preferences
(Eisenhardt, 1985; Govindarajan and Fisher, 1990). Siegel et al. (1991) define socialisation as the acqui-
sition of values, attitudes, skills and knowledge that promote goal congruence among organisational
members (Siegel et al., 1991).2 For Wooldridge and Minsky (2002), socialisation is the way an individual
is taught and learns what behaviour is desirable and customary. Thus, it entails social interaction processes
that focus on getting individuals to accept collective norms, values and goals as their own, thus ensuring
that they work towards achieving these goals (Ahuja and Galvin, 2003).
Ansari (1977) argues that MCS research should consider both the PMS and socialisation processes.
He reasons that the working of MCS will require both performance measures and socialisation process.
In the present study, we conceptualise MCS to include both PMS and socialisation processes.
3.3. Management control systems and cooperation in SSRs
Langfield-Smith (1997) contends that organisations may be able to use their MCS to gain cooperation
from organisational members and to channel their efforts towards the collective. As yet, this link is
not explicitly examined in the management control literature. We empirically examine the espoused
connection between MCS and cooperation in SSRs. Consistent with the above literature, we conceptualise
MCSs to include accounting PMS and socialisation processes. In the following subsections, we theorise
the links between MCSs and cooperation and develop testable hypotheses therefrom. The hypothesised
relationships are shown in Fig. 1.
3.3.1. Performance measurement systems and cooperation in SSRs

One of the factors identified to be crucial to the development and stimulation of cooperation in a
relationship is accountability structure (George, 1992; Wagner III, 1995). In group situations, some
individuals will prefer to share in the benefit without significantly contributing to its production. Such
2
Though the term goal congruence is used loosely here, it was not explicitly measured or captured in the theoretical model.
Future research may benefit from explicitly measuring this variable.
Fig. 1. Theoretical model.
behaviours are variously referred to as free riding and/or social loafing.3 The possibility for some exchange
participants to engage in free riding and social loafing creates an equally uncooperative phenomenon called
the “sucker effect”; the tendency for an individual, surrounded by others who are likely to free ride, to
engage in free riding in order to avoid the inequity of contributing more than others for the same share
of a collective benefit (Wagner III, 1995). Whatever, the form it takes, free riding or social loafing lead
to a reduction in individual effort and collective outcomes. In consonance with agency theory, Wagner
III (1995) and George (1992) note that such uncooperative behaviour may arise because the participants’
behaviour cannot be observed or assessed. Accountability structures resolve this problem in two ways.
First, they encourage information gathering and facilitate information sharing through feedforward and
feedback loops. These information gathering and sharing loops enhance transparency (by making hitherto
unobservable behaviour more visible), with the potential effect of eliminating or reducing the tendency
for participants to engage in free riding and social loafing (Jones, 1984; George, 1992). The elimination
or reduction of free riding and social loafing implies that participants will equally take responsibility
for producing collective benefits; hence, they will engage in joint problem solving, be more prepared
to adapt to unanticipated changes and/or refrain from unnecessary use of power. Second, accountability
structures seek to align the efforts of relationship participants by articulating their mutual promises and
ensuring that mechanisms exist to assess and enforce how they deliver on those promises. This alignment
enhances participants’ faith in not being cheated; thereby attenuating conditions that breed the “sucker
effect” (Wagner III, 1995) and encouraging participants to share information, take responsibility for joint
problem solving, adapt to changes and restraint from the use of power.
PMS are comprehensive accountability systems designed to measure and evaluate both the financial
and non-financial implications of activity performance and results (Abernethy and Lillis, 2001). They
serve as information systems and medium for performance accountability (Abernethy and Lillis, 2001).
3
Earley (1989, p. 565) defines social loafing as “the reduced performance of individuals who act as part of a group rather than
alone”.
The centrality of PMS to accountability stems from the visibility and transparency that it provides about
individual, group and/or organisational behaviour and results.
PMS enable organisations to set standards that reflect desirable performance outcomes and then mea-
sure and assess actual outcomes against these standards. The processes of collecting these measures and
the feedback loops established facilitate the sharing of vital information among exchange participants
and thereby foster cooperation between them (Malina and Selto, 2001). Also, PMS provide knowledge
repositories that can be drawn upon for problem identification and joint problem solving. The measures
create awareness of the problems, develop shared meanings of these problems and provide supporting
information and computational resources for problem solving (Lang et al., 1978). Through goal setting
and feedback, PMS also communicate the need to adapt to changes by signalling the impact of these
changes on the mutual benefits of exchange participants. The information processing and computational
capacity of PMS enables participants to establish cause–effect relationships and to evaluate the cost and
benefits of alternative causes of action when adaptability becomes imperative. Furthermore, agency theo-
rists argue that information asymmetry is a source of power in a relationship (Eisenhardt, 1989; Baiman,
1990). The information gathering function of PMS may attenuate this asymmetry and hence; restraint
participants from the use of power. In SSRs, it is expected that PMS will encourage participants to develop
cooperative attitude to collective interests. We therefore hypothesis that:
Hypothesis 1. There is a positive association between the use of PMS and all four dimensions of
cooperation.
3.3.2. PMS and socialisation processes in SSRs

Ansari (1977) contends that performance measures influence individuals’ perception of and reaction to
others in organisations. He argues that performance measures, in part, offers structural arrangements and
discursive spaces for social interactions. Following Ansari (1977), we argue that the goals and the feedback
loops incorporated into PMS can influence socialisation process. Performance reports produced through
PMS may constitute templates for discussions in interactional settings such as periodic performance
review meetings and joint training. Also, through performance measures, individuals come to construct
perceptions of fairness and trustworthiness of others they deal with (Luft, 1997) and with significant
consequences on the way they interact with others. We therefore expect PMS to have a direct positive
association with socialisation processes. Thus:
Hypothesis 2. There is a positive association between the use of PMS and socialisation processes.
3.3.3. Socialisation processes and cooperation in SSRs

Feeling of attachment to a group is held as one of the important factors that can foster cooperation among
exchange participants (Korsgaard et al., 1995; Chen et al., 1998). Korsgaard et al. (1995) define attachment
as the extent to which participants feel themselves to be part, or identifies with the goals, of a collective.
Participants who feel attached are more likely to cooperate than those who feel alienated. They argue
that alienation (or the absence of attachment) may impede participants’ willingness to share information
relevant for future decision making and may also create a tendency for participants to engage in the
pursuit of self-interest rather than mutual interests. Attachment is argued to be a conduit for information
sharing (Gulati and Westphal, 1999; Luo, 2001) as it enhances participants’ confidence and willingness to
transfer knowledge among themselves. Attachment also creates a sense of common identity, which then
stimulates the acceptance of joint responsibility for problems. More so, the information shared among
the participants can enhance problem identification and also provide a template for joint problem solving.
It also enables parties to (re)negotiate solutions, when change occurs, without resort to legal stipulation
(Heide and John, 1988; Luo, 2001). Furthermore, attachment is argued to have a strong influence on
the use of power, as the exercise of power can lead to the loss of an individual’s social “face”, with
the potential of loss of future opportunities (Cook and Emerson, 1978; Luo, 2001). Thus, attachment
stimulates positive attitude towards the group including the willingness to share information, to engage
in joint problem solving, adapt to unanticipated changes and restraint from the use of power.
Socialisation processes facilitate attachment by demonstrating the primacy of the collective interests
over those of individuals4 (Forgaty, 1992). Socialisation involves verbal and interpersonal interactions
through which individuals negotiate roles and identities and by which individuals associate meaning and
significance to events, practices and procedures (Reichers, 1987). The interactions that lead to socialisation
may include training, meetings, seminars and personal consultations. These interactional settings are
arenas for information sharing. Henderson and Nutt (1978) argue that interaction accounts for a major
proportion of information sharing while Mintzberg (1973) reports that managers depend heavily on verbal
interaction to exchange vital information among themselves. Thus, the interactions that characterise
socialisation processes can enhance cooperation through information sharing. Such interactional settings
also provide opportunities for discovering, learning and resolving problems in a collaborative fashion
(Adkins, 1995), serve as a platform for (re)negotiating changes to existing contractual arrangements (Luo,
2001) and suppress exchange participants’ desire to exercise power to the disadvantage of others. We
expect the interpersonal relationships that develop from the socialisation processes to promote attachment
among participants in SSRs and thereby stimulate them to share information, to constructively discuss
problems and conflicts, support and encourage each other. Consequently, we hypothesise that:
Hypothesis 3. There is a positive association between socialisation processes and all four dimensions
of cooperation.
3.3.4. Information sharing and other dimensions of cooperation

Information sharing has been argued to have a significant influence on problem solving (Laughlin
and Hollinshead, 1995; Gruenfeld et al., 1996), adaptability to changes (Heide and John, 1988) and the
ability to exercise power (Eisenhardt, 1989; Baiman, 1990; Usdiken, 1990; Fisher et al., 2002). Following
this, we expect information sharing in supply relationships to have positive impacts on problem solving,
adaptability to unanticipated changes and restraint from the use of power.
Hypothesis 4. There is a positive association between information sharing and the other three dimensions
of cooperation.
3.4. Cooperation and relationship performance in SSRs
Researchers have long argued that cooperation has a positive impact on performance (Browning et al.,
1995; McAllister, 1995; Chen et al., 1998). They contend that cooperation increases individual effort,
4
A literature search on the possibility of socialisation processes being a dependent variable explained by cooperation was
carried out and the search produced no theoretical basis to support that link.
which in turn leads to an increase in performance. Some of these researchers contend that the more
information that is shared the better the performance will be since parties exchange knowledge that is
crucial to the effective and efficient use of resources (Luo, 2001; Huang and Gangopadhyay, 2004). Others
focus on problem solving as a key to joint optimal outcomes in a relationship (Clopton, 1984). Similarly,
adaptability to changes is said to enable exchange participants to take advantage of opportunities in the
exchange environment when they arise and to avoid costly threat to the continual delivery of mutual
benefits; thus enhancing overall performance (Heide and Miner, 1992). Finally, restraint from the use
of power is argued to reduce opportunism, enhance trust and spurs the diffusion of valuable knowledge,
which all contributes to successful performance. Thus, all four dimensions of cooperation are said to have
beneficial impact on relationship performance. Therefore:
Hypothesis 5. There is a positive association between all four dimensions of cooperation and perfor-
mance in SSRs.
3.5. PMS and relationship performance in SSRs
Accounting researchers have long argued that there are performance benefits associated with PMS
(Kaplan and Norton, 1996; Chenhall and Langfield-Smith, 1998). PMS are held to clarify expectations,
promote goal directed behaviour, reduce ambiguity, and enhance feedback and learning, which individu-
ally and/or collectively contribute to optimal performance. Empirical investigations provide evidence of
the link between PMS and performance, especially in situations where goals exist and there is relevant
and timely feedback (Chenhall and Langfield-Smith, 1998; Mooraj et al., 1999; Hoque and James, 2000).
While these studies improve our understanding of the PMS-performance link, they focus mainly on per-
formance in hierarchical organisations, where direct control and supervision is possible. Longer-term
supply relationships operate through different control and authority regimes, where exchange partici-
pants are autonomous and retain independent decision making powers (Wood and Gray, 1991); hence,
PMS may have implications on performance beyond what is established in the existing management
control literature. As yet, there is little empirical research that clearly examines the PMS-performance
link in longer-term supply relationships; hence there is limited understanding of the impact of PMS on
the performative character of such relationships. We examine the direct effects of PMS on performance
by hypothesising that:
Hypothesis 6. There is a positive association between the use of PMS and performance in SSRs.
3.6. Socialisation and relationship performance in SSRs
Ansari (1977) argues that the interactions that accompany socialisation processes are vital for goal
accomplishment. Similarly, Feldman (1976) contends that socialisation processes affect the general sat-
isfaction of participants and the feeling of autonomy and personal influence over work. He argues that
the mutual influences of participants in a socialisation process may increase the number and quality of
creative suggestions made by participants and thus lead to enhanced performance. Following this line of
reasoning, we expect socialisation processes to be positively associated with relationships performance
in SSR; hence:
Hypothesis 7. There is a positive association between socialisation processes and performance in SSRs.
4. Methods
4.1. Sample selection
The unit of analysis for this study is a specific supply relationship. Conceptually, data on supply
relationships can be gathered from the buyers’ perspective, suppliers’ perspective or both but consistent
with other supply relationship studies (see, for example, Cannon and Perreault, 1999), we decided to
collect data from the buyers’ perspective. Cannon and Perreault (1999, p. 445) argue for this approach
on the grounds that “it is usually the customer [buyer] that ultimately makes the decision of whether
to purchase from a supplier. Thus, even if the supplier and customer have different views regarding
relationships, it is the customer’s view that is likely to be determinant”.
Data for this study were collected from a sample of buying firms drawn from the mining and resources
sector in Australia. Ittner et al. (2003), argue that restricting survey sample to a single industry has an
important advantage of implicitly controlling for the myriad of confounding factors that impact on results
derived from cross-sectional surveys and also improves the internal validity of the study. Consistent with
Ittner et al. (2003), we limited our survey to a single industry. The mining and resources sector was
chosen for at least two reasons. First, the mining and resources sector is a major contributor to Australia’s
economic performance, with significant impact on the Australian manufacturing, construction, banking
and financial, property and transport sectors (ACA, 2005; MCA, 2005; MineBox, 2005). According
to the Mineral Council of Australia (MCA, 2005), the mining and resources sector contributes about
35% of Australia’s total annual merchandise exports and employs about 321,000 Australians. Given the
increasing use of supply relationships within this sector, a well managed relationships the mining and
resources companies and their suppliers is vital not only the sector but to the other sectors of the Australian
economy.
Second, the mining and resources companies are actively involved in collaborative arrangement with
suppliers, who provide products/services in areas ranging from drilling, exploration, transportation, con-
sultancy, equipment supply, information systems, health services and material supply among others (ACA,
2005; MCA, 2005; MineBox, 2005). According to Australian Mining (AM), mining and resources com-
panies seek to reduce costs and increase operating efficiency through supply arrangements (MineBox,
2005). Yet little is known about such arrangements in the academic literature. Academic researchers are
preoccupied with supply relationships between the public and private sectors, in the manufacturing sector
and/or in the service sector. We therefore consider that the choice of the mining and resource sector
appropriate for the present study.
An initial list of 459 mining companies was prepared from the websites of the Mineral Council of
Australia, Mining and Exploration Australia and New Guinea, and the directory of Australian Mining
and Petroleum companies. Four hundred and seven out of the 452 had correct mailing addresses/phone
numbers and were thus contacted by phone to determine their willingness to participate in the survey.
Unfortunately, 35 declined to participate (citing various reasons including work pressures, start-up com-
pany, etc.), leaving us with a target sample of 372.
A self-administered questionnaire (including reply paid envelops) was mailed directly to the managers
responsible for managing supply relationships in the target sample. Respondents were asked to nominate
only one SSR that they were currently managing and to respond to the questionnaire based on their
understanding of the nominated SSR. They were also encouraged to complete and return the questionnaire
within one week after receiving it. Four weeks after mailing the questionnaire, reminder letters were sent
Table 1
Cross-tabulation of core area of business and contract type
Contract type Core area of business
Coal mining Metal ore Minerals exploration Minerals mining Oil and gas Other Total
Drilling 2 4 3 2 5 16
Materials supply 4 1 1 4 1 1 12
Equipment supply 4 3 1 3 11
Transport 3 1 1 5 10
Exploration 1 4 2 7
IST 2 2 4
Consultancy 3 1 1 2 7
Excavation 1 1
Other 3 1 1 5
Total 15 19 5 18 13 3 73
to all managers (and follow up phone calls were made to some of them), entreating those who had not
yet responded to do so and thanking those who had responded. A PDF version of the questionnaire
was posted on a website so that those who had misplaced the original hardcopy could download that.
Of the 372 questionnaires sent to the target sample, 85 (22.8%) were returned. Out of this 73 (19.6%)
questionnaires were useable because 12 had missing data. The 73 respondents had a mean of 6.5 years
(S.D. = 6.9) of employment with this company and a mean of 2.8 years (S.D. = 2.8) working with the
specific supply relationship covered in the questionnaire. Descriptive statistics of the companies and the
specific relationships surveyed are summarised in Table 1.
Of those target respondents who were reminded by phone to complete the questionnaire, some declared
their intention not to respond. Some of the major reasons cited by these non-respondents included (a) do
not have contracts of the type referred to in the questionnaire, (b) declined to participate due to corporate
policy, (c) company is going through restructuring, (d) start-up nature of the company and (e) operations
of the company are now overseas so unable to provide useful information from the small administration
office in Australia. As a proxy for statistically evaluating non-response bias we compared the means of
the first 10 responses to those of the last 10 and no significant differences were identified; indicating the
absence of non-response bias.
4.2. Measurement of variables
The latent variables (constructs) in this study were measured using multi-item manifest variables
(measures)—see Appendix A for the measures used for each construct. For most constructs, the measures
were generated from previous research and modified to fit the current research context. Each measure
was anchored on a 7-point scale. The wording and direction of the measures were reviewed by two
management accounting academics and this resulted in refinement of some of the measures. Discussion
of the measure of each construct follows:
Performance measurement systems: The PMS construct was measured as a second order construct of two
first order constructs; namely, financial measures and non-financial measures. In designing questions
for the financial and non-financial measures, we conducted content analysis of eight SSRs performance
reports, which resulted in six scale-items. The financial measure construct was a three-item scale mea-
suring the extent to which cost/financial targets were used and the degree to which the buyers were
measuring the extent to which suppliers were meeting those targets (alpha = 0.796). The non-financial
measure construct was also a three-item scale measuring the degree to which the suppliers were per-
forming with respect to quality, time and according to buyers’ specification (alpha = 0.869). We then
measured the PMS construct using the method of repeated manifest variables suggested in Chin and
Gopal (1995). We modelled the PMS construct as a second order molar using partial least squares
algorithms. The reliability of this second order construct is evaluated using the relative path weights of
the first order constructs (financial = 0.551 and non-financial = 0.761). The path weights were all sig-
nificant at the 0.001 level (one-tailed), indicating that the PMS construct has been reliably measured.
The higher relative weight of the non-financial measure (supported by a relatively higher correlation
between non-financial measures and PMS; see Table 3) in the PMS construct suggests that non-financial
measures may be more closely linked to the drivers of performance management in SSR than financial
measures.5 This supports the literature that advocates for more non-financial measures to be incorporated
into performance measurement systems (Kaplan and Norton, 1992, 1996; Ittner et al., 2003).
Socialisation: Following Chalos and O’Connor (2004) and theoretical discussions in the management
control and related literature, socialisation was measured as a two-item scale that examined the extent
to which respondents relied on meeting and personal consultations to manage their relationships. The
correlation between the two items was significant at the 0.01 level.
Cooperation: Hulland (1999) suggests that when a construct is more properly conceptualised as mul-
tidimensional, it is appropriate to separately represent each of these dimensions in a statistical model.
Following this suggestion, cooperation was measured and included in the analysis as a multidimensional
construct comprising the four dimensions identified in the theory section of this paper. Each dimension
(information sharing, joint problem solving, adaptability to change and restraint from the use of power)
was measured by two-items adapted from Heide and Miner (1992), with reported alphas ranging from 0.6
to 0.88. The correlations between the scale-items for each dimension of cooperation were all significant
at the 0.01 level.
Performance: Relationship performance was a four-item scale derived from Gainey and Klaas (2003)
and modified to suit the present research context. The scale measured how suppliers were performing
relative to the buyers’ expectations on quality, cost, time and improved decision making (alpha = 0.822).
4.3. Statistical analysis and results
The partial least squares (PLS) approach to structural equation modelling (using PLS graph version
3) was used in this study. PLS is a component-based modelling technique that simultaneously examines
theory (structural model) and measures (measurement model). The advantages in using PLS are (a) its
ability to handle multiple exogenous and endogenous constructs at the same time, (b) its ability to handle
multicollinearity among endogenous constructs and (c) its ability to create latent construct scores directly
on the basis of cross products involving multi-item measures. For Limayem et al. (2001), the ability to
include multiple measures for each construct provide more accurate estimates of paths between constructs.
5
In a PLS model, weights are assigned to variables constituting a construct based on the overall relationship in the nomological
model (Chin, 1998). The higher weight for non-financial measure thus imply that it helps explain the effects of the PMS construct
on other constructs more than the financial measure.
More importantly, PLS has no distributional assumptions and is more useful in handling studies involving
small sample sizes. Given the sample size of the present study and the advantages listed earlier, we found
PLS more appropriate for analysing the data collected. The sample size of 73 is consistent with the sample
size requirements for PLS6 (for details, see Chin and Newsted, 1999).
Since the distributional properties of estimates are unknown in PLS, the traditional parametric-based
technique for significance testing is not appropriate (Chin, 1998). Instead, bootstrapping resampling
(500 sample) procedures were used in this study to estimate the significance of factor loadings and path
coefficients in the model. Also, because PLS is distribution free, overall model fit statistics such as those
associated with covariance-based structural equation modelling are not appropriate (Chin and Newsted,
1999; Hulland, 1999). Consequently, the R2 is used to assess the stability of the model.
Although, PLS simultaneously estimates parameters for the measurement and structural models, the
two models are analysed and interpreted separately (Hulland, 1999); hence, the applications of the two
models to the present study are separately discussed below.
4.4. Discussion of the measurement model
The measurement model evaluates the relationship between measures and constructs by assessing the
reliability and validity of the scale measures. We assessed individual item reliability by examining the
loadings of the items to their respective constructs (see Table 2). All measures are above the 0.70 loading
level (except one performance measure which has a loading of 0.69), indicating that the measures share
more variance with their respective constructs than with error variance. All loadings are statistically
significant at the 0.001 level (one-tailed). The composite reliability for the constructs range from 0.814
to 0.964 (all higher than the 0.70 level suggested by Nunnally (1978)).
Convergent validity is assessed using the average variance extracted (AVE). AVE measures of 0.5 or
more are considered to demonstrate adequate convergent validity (Chin, 1998). As shown in Table 2, the
AVEs of all the constructs are more than 0.65, providing evidence of adequate convergent validity.
We evaluated the constructs for discriminant validity by comparing the square roots of AVEs to the
correlation between constructs; providing an assessment of the extent to which a construct shares more
variance with its measures than with other constructs. This is demonstrated in the correlation matrix in
Table 3, which includes correlation among constructs in the off-diagonal and the square root of AVE in
the diagonal. The diagonal elements are all greater than their respective off-diagonal elements, indicating
adequate discriminant validity.
The above analysis demonstrates that the measurement model is reliable and valid.
4.5. Discussion of the structural model
The structural model was used in testing the hypothesised relationships between our theoretical
constructs as depicted in Fig. 1. A summary of the path coefficients (and their associated t-values)
and the R2 s of the endogenous constructs are presented in Table 4. Panel A (Table 4) shows the
6
Chin and Newsted (1999) suggest that to determine the adequacy of a sample for PLS, researchers should find the largest
of two possibilities: (a) the construct with the largest number of formative measures or (b) the endogenous construct with the
largest number of exogenous construct impacting on it. The sample size should be equal to or more than 10 times either (a) or
(b), whichever is greater. For the present study, this will be 60 or more. The sample size of 73 is therefore adequate for PLS.
Table 2
Reliability and convergent validity (AVE)
Latent variable Mean S.D. Loading
Financial measures (composite reliability = 0.882; AVE = 0.714)
Fin1 5.110 1.603 0.8460
Fin2 5.223 1.574 0.9300
Fin3 5.192 1.533 0.7500
Non-financial measures (composite reliability = 0.921; AVE = 0.795)
Nonfin1 6.315 0.970 0.8705
Nonfin2 6.260 0.928 0.8766
Nonfin3 6.222 0.898 0.9270
Socialisation (composite reliability = 0.814; AVE = 0.686)
Soc1 4.795 1.716 0.8005
Soc2 5.671 1.191 0.8554
Information sharing (composite reliability = 0.964; AVE = 0.930)
Inform1 6.192 1.036 0.9604
Inform2 6.205 1.013 0.9688
Problem solving (composite reliability = 0.865; AVE = 0.763)
Solve1 5.370 1.612 0.7923
Solve2 5.671 1.425 0.9476
Adaptability to changes (composite reliability = 0.926; AVE = 0.863)
Adapt1 5.438 1.333 0.9354
Adapt2 5.726 1.216 0.9222
Use of power (composite reliability = 0.897; AVE = 0.813)
Power1 6.110 1.021 0.9000
Power2 5.986 1.219 0.9033
Performance (composite reliability = 0.887; AVE = 0.664)
Perf1 5.712 1.160 0.8870
Perf2 5.014 1.338 0.6951
Perf3 5.726 1.017 0.8123
Perf4 5.342 1.157 0.8514
All item loadings are statistically significant (p < 0.001, one-tailed).
Table 3
Discriminant validity
Financial Non-financial PMS Social Inform Solve Adapt Power Perform
Financial 0.845
Non-financial 0.139 0.892
PMS 0.657 0.838 0.658
Social 0.332 0.253 0.377 0.828
Inform 0.304 0.510 0.556 0.563 0.964
Solve 0.472 0.304 0.488 0.234 0.467 0.873
Adapt 0.209 0.323 0.361 0.152 0.278 0.626 0.929
Power 0.167 0.464 0.449 0.265 0.605 0.399 0.454 0.902
Perform 0.398 0.432 0.548 0.159 0.429 0.601 0.589 0.559 0.815
Diagonal elements: square root of AVE; off-diagonal elements: correlations between constructs.
330
Table 4
PLS results
Panel A: path coefficient, t-statistics and R2
Latent variable Path to R2

Sociala Inform Solve Adapt Power Perform
PMS 0.377 (3.4492)*** 0.401 (3.2879)*** 0.343 (2.2970)** 0.301 (2.3784)** 0.168 (1.2385) 0.267 (2.3414)** –
H. Mahama / Management Accounting Research 17 (2006) 315–339

Social – 0.412 (4.2561)*** −0.073 (0.5498) −0.034 (0.2268) −0.126 (0.9406) −0.105 (0.9200) 0.14
Informb – – 0.317 (1.7992)** 0.129 (0.8674) 0.583 (5.3212)*** 0.003 (0.0217) 0.46
Solve – – – – – 0.238 (1.4292)* 0.30
Adapt – – – – – 0.240 (2.3801)** 0.14
Power – – – – – 0.262 (2.0235)** 0.39
Perform – – – – – – 0.56
Panel B: indirect effects and t-statistics (Sobel’s testc )
Latent variable Linkages Path to
Solve Adapt Power Perform

Inform Solve 0.075 (1.2429)
Power 0.153 (1.9212)**
PMS Inform 0.234 (2.8334)***
Social Inform 0.131 (1.6974)** 0.053 (0.8734) 0.240 (3.3601)***
Inform/solve 0.031 (1.2246)
Inform/power 0.063 (1.7927)**
n = 73.
a
We tested whether socialisation processes could have an influence on PMS and the PLS provided a very highly insignificant relationship, with the path
co-efficient approaching zero.
b
To test whether information sharing was the result of poor performance, we grouped the data into two clusters reflecting high performance and low
performance and the results between the two were not statistically different.
c
Sobel’s test is used in testing the statistical significance of indirect relationship between an independent construct and a dependent construct through a
mediator (Preacher and Leonardelli, 2001). The test generates t-statistics and p-values for the indirect path.
*
p < 0.10 (one-tailed).
**
***
direct path relationships between constructs in the theoretical model and Panel B shows indirect path
relationships.
Hypothesis 1 predicted a positive relationship between PMS and all four dimensions of cooperation. The
structural path coefficient between PMS and all the dimensions of cooperation are statistically significant
and in the hypothesised direction (except for restraint from use of power), thus providing partial support
for Hypothesis 1. We examined whether PMS will have an indirect effect on power through information
sharing and the results indicate a statistically significant indirect effect of PMS on restraint from use
of power through information sharing. Consistent with existing research, the results indicate that PMS
ensures that information is fairly distributed among relationship participants (Baiman, 1983; Eisenhardt,
1989); enables knowledge to be acquired, interpreted and shared for future learning and problem solving
(Lang et al., 1978); and aligns the interest of exchange participants (George, 1992; Wagner III, 1995) so that
they will be willing to adapt to changes when necessary and also avoid the exercise of power. In Hypothesis
2, PMS was predicted to be positively related to socialisation processes. The structural model provides
statistically significant results that confirm this hypothesis. This provides empirical validation of Ansari’s
(1977) argument that performance measure influence interactions that characterise socialisation processes.
Socialisation was also hypothesised (Hypothesis 3) to be positively related to all four dimensions of
cooperation. This hypothesis was partially supported. The path between socialisation and information
sharing is significant and in the predicted direction. This provides further support for prior research
findings that managers gather more of the information they need through social interactions then from
any other source (Mintzberg, 1973; Henderson and Nutt, 1978; Gulati and Westphal, 1999; Luo, 2001).
However, the paths leading from socialisation to problem solving, adaptability to changes and restraint
from use of power are not statistically significant. Though this suggests that there is no direct association
between socialisation processes and these three dimensions of cooperation, we explored the possibility of
an indirect relationship and found that socialisation processes have statistically significant indirect effects
on problem solving and restraint from use of power through the information shared among participants
(see Panel B, Table 4).
Hypothesis 4 predicted a relationship between information sharing and the other three dimensions
of cooperation and this was supported except the path between information sharing and adaptability
to unanticipated changes. The significant relationships found between information sharing and problem
solving, on one hand, and information sharing and restraint from use of power, on the other, are consistent
with Gruenfeld et al. (1996) and Laughlin and Hollinshead (1995) argument that information sharing
facilitates problem solving and also supports research that argues that information sharing reduces the
likelihood of power being exercised (Usdiken, 1990; Fisher et al., 2002). The insignificant relationship
between information sharing and adaptability implies that information sharing does not play a significant
role in decision related to ill-structured and unanticipated problematic situation. Kelly and Karau (1999)
argue that in such ad hoc situations, individuals are more likely to rely on their initial preferences and
unshared information in arriving at a solution.
In Hypothesis 5, we predicted that all four dimensions of cooperation would be positively associated
with performance. The structural paths of three dimensions of cooperation (problem solving, adaptability
to changes and restraint from the use of power) are statistically significant and in the hypothesised
direction. These results provide support for research that calls for the enactment of cooperation in interfirm
relationship (Browning et al., 1995; McAllister, 1995; Smith et al., 1995; Bensaou, 1997; Faerman et al.,
2001). Surprisingly, the path from information sharing to performance, though in the predicted direction,
is not significant. We found the results on the association between the information sharing dimension of
cooperation and performance to be inconsistent with existing research (Ellram, 1995; Luo, 2001; Huang
and Gangopadhyay, 2004). There may be at least three possible explanations for this. First, Cannon
and Perreault (1999) and John (1984) argue that though information sharing can potentially improve
performance, it also opens up avenues for opportunistic behaviour that can have negative consequences
on performance. Second, Maher et al. (1979) indicate that it is not the amount of information shared
per se that results in adequate performance but also the quality and relevance of the information shared.
While our study was designed to capture information sharing as practiced, we did not explicitly examine
the quality of the information shared. Future research may be required to explore this further. Third, we
reasoned that though there is no direct association between information sharing and performance, there
could be an indirect relationship through what the shared information is used to achieve (such as problem
solving, renegotiation of changes and reduction in power asymmetry).
We explored the possibility of indirect relationship through the other three dimension of cooperation
and found support for a statistically significant indirect relationship through restraint from the use of power.
The significant indirect relationship between information sharing and performance (through restraint from
use of power) lends some support to the literature that calls for more information sharing in the face of
uneven distribution of power (Stasser et al., 1989). Information asymmetry has long been argued to be
one of the sources of power (Gaski and Nevin, 1985; Ross et al., 1997) and that power negatively impact
on outcomes (Bacharach and Lawler, 1980; Gaski and Nevin, 1985; Conger and Kanungo, 1988; Reve
and Stern, 1989; Ross et al., 1997). Thus, information sharing reduces information asymmetries and the
likelihood of the exercise of power, which then significantly improves performance.
The path from PMS to performance is also significant and in the direction predicted, providing support
for Hypothesis 6. The results are consistent with transaction cost-based studies that argue that accounting
Fig. 2. PLS structural model with path coefficients. *** p < 0.01 (one-tailed), ** p < 0.05 (one-tailed) and * p < 0.10 (one-tailed).
performance measures contribute to performance improvement (Dekker, 2003; Langfield-Smith and

Smith, 2003; Seal et al., 2004). This finding is particularly important to practitioners as it rejects the
notion of “business on a handshake” (for details, see Shapiro et al., 1992) and reinforces the importance
of performance measurement in the everyday management of interfirm relationships.7 The results are
also consistent with the management control research that reports significant correlations between PMS
and performance (Hoque and James, 2000; Ittner et al., 2003) and studies in psychology that suggest
that performance measures enhance performance through goals and feedback (Locke et al., 1981; Bruns
and McKinnon, 1992).
Finally, Hypothesis 7 predicted a positive relationship between socialisation processes and perfor-
mance and the results did not support a direct relationship. However, we found statistically signifi-
cant indirect relationships through the indirect path of information sharing and restraint from use of
power.
Fig. 2 presents the PLS structural model and the associated path coefficients.
5. Conclusion
The empirical aim of this study was to investigate the impact of management control systems on coop-
eration in strategic supply relationships. Existing accounting research on such relationships has tended
to focus on the management control patterns that are (or ought to be) adopted for specific relationships
or the control combinations that operate within these structural patterns (Frances and Garnsey, 1996; Van
der Meer-Kooistra and Vosselman, 2000; Langfield-Smith and Smith, 2003; Dekker, 2004; Hakansson
and Lind, 2004; Seal et al., 2004). The present study contributes to this growing body of knowledge
by empirically exploring how cooperation may be mobilised and enacted through MCS. Specifically,
we focused on the link between two management control types (PMS and socialisation processes) and
cooperation and how that translates into desired relationship performance. The focus on cooperation was
motivated by the works of academic researchers who consider it to be crucial to successful performance
in interfirm relationships (Browning et al., 1995; McAllister, 1995; Smith et al., 1995; Chen et al., 1998;
Faerman et al., 2001) and the paucity of empirical accounting research that examines the implications of
MCS for cooperation in such relationships.
The results of the study contribute to the literature by (a) demonstrating the importance of PMS in
stimulating cooperation and enhancing performance, (b) foregrounding the significance of socialisa-
tion processes to information sharing, (c) indicating the performance benefits of cooperative behaviour
and (d) the importance of information sharing on problem solving and the exercise of power. The
results also highlight the importance of power asymmetry in SSRs. This is evidence by the direct
effect of power on performance and the mediating role of power on the effects socialisation pro-
cesses and information sharing on performance. More importantly, information sharing (though not
directly associated with performance) plays a crucial intermediate role in the structural model. These
results are relevant to practitioners who seek ways to improve their interfirm relationship perfor-
mance and to academics who are interested in understanding how MCS are implicated in such
relationships.
7
Shapiro et al. (1992) argue that the establishment of social controls such as trust reduces the need for monitoring behaviour.
Similar arguments are found in Powell (1990) and Kramer and Tyler (1996).
Though, this study provides useful insights into the implications of management controls for coopera-
tion, the results need to be interpreted subject to the usual limitations of survey research. In particular, the
focus on only supply relationships within the mining and resources sector (though improved the internal
validity of the study) limits the extent to which the results may be generalised across other sectors. We
did not also consider the differential impact of financial and non-financial measures nor did we model
the impact of reward systems on cooperation and performance in SSRs. Also, unlike Ittner et al. (2003)
who used both perceived and objective measures of performance, we were unable to obtain objective
performance measures due to the sensitive nature of such data in SSR context. We therefore used only
perceived measures of performance. Future research could expand the present model by taking these
variables into account.
Acknowledgements
This paper has benefited from the helpful comments of Osman Adam, Paul Andon, Peter Luckket,
Alfred Yawson, seminar participants at the University of Canberra, and two anonymous reviewers. Finan-
cial support from the Faculty of Commerce and Economics (University of New South Wales) is gratefully
acknowledged.
Appendix A. Measures
A.1. Management control systems
A.1.1. Financial measure

The response scale for the following items ranged from 1 (strongly disagree) to 7 (strongly agree):
1. We establish cost targets for this supplier.
2. We measure the extent to which this supplier meets financial targets.
3. We evaluate the amount of cost that could be saved by this supplier.
A.1.2. Non-ﬁnancial measure

1. We measure the extent to which this supplier delivers products/services on time.
2. We measure the extent to which this supplier delivers products/services according to our specification.
3. We measure the extent to which this supplier meets acceptable quality levels for the products/services
supplied.
A.1.3. Socialisation processes

1. How frequently do you hold review meetings with this supplier? (Scale ranged from 1 (weekly) to 7
(not at all)) reverse coded.
2. To what extent do you rely on personal consultation to manage your relationship with this supplier?
(Scale ranged from 1 (not at all), to 7 (greater extent)).
A.2. Cooperation
A.2.1. Information sharing

1. In this relationship, any information that might help the other party will be provided to them.
2. We keep each other informed about events or changes that may affect the other party.
A.2.2. Problem solving

1. In most aspects of this relationship we are jointly responsible for getting things done.
2. We treat problems that arise in the course of this relationship as a joint rather than individual respon-
sibility.
A.2.3. Willingness to adapt to changes

1. When some unexpected situation arises, we would rather work out a new deal than hold each other to
the original terms of the contract.
2. It is expected that we will be open to modify our agreement if unexpected events occur.
A.2.4. Restraint from use of power

1. We feel it is important not to use any proprietary information to the other party’s disadvantage.
2. We expect that neither party will make demand that might be damaging to the other.
A.3. Relationship performance
Relative to our expectations, our relationship with this supplier has led to:
1. improved service/product quality;
2. cost savings;
3. on time delivery;
4. high quality decision making.
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Management Control Systems Cooperation A

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Management Accounting Research 17 (2006) 315–339

Management control systems, cooperation and performance in

2. A brief note on strategic supply relationship

3. Theoretical framing and hypothesis formulation

3.1. The concept of cooperation

3.2. Management control systems

3.3. Management control systems and cooperation in SSRs

3.3.1. Performance measurement systems and cooperation in SSRs

Fig. 1. Theoretical model.

3.3.2. PMS and socialisation processes in SSRs

3.3.3. Socialisation processes and cooperation in SSRs

3.3.4. Information sharing and other dimensions of cooperation

3.4. Cooperation and relationship performance in SSRs

3.5. PMS and relationship performance in SSRs

3.6. Socialisation and relationship performance in SSRs

4.1. Sample selection

4.2. Measurement of variables

4.3. Statistical analysis and results

4.4. Discussion of the measurement model

4.5. Discussion of the structural model

Latent variable Path to R2

H. Mahama / Management Accounting Research 17 (2006) 315–339

Panel B: indirect effects and t-statistics (Sobel’s testc )

Latent variable Linkages Path to

Solve Adapt Power Perform

performance measures contribute to performance improvement (Dekker, 2003; Langfield-Smith and

A.1. Management control systems

A.1.1. Financial measure

A.1.2. Non-ﬁnancial measure

A.1.3. Socialisation processes

A.2.1. Information sharing

A.2.2. Problem solving

A.2.3. Willingness to adapt to changes

A.2.4. Restraint from use of power

A.3. Relationship performance

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